Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

ABCP was always the weakest link in the shadow banking chain. Repo, as fully collateralized lending, was supposed to be safe. Initially, that expectation was borne out. Bear Stearns, the smallest of the US investment banks, reported the first loss in the firm’s history in the first quarter of 2007.13 As was common knowledge, it was heavily involved in mortgage securitization. That was enough to restrict its access to commercial paper markets. The bank’s ABCP issuance plunged from $21 billion at the end of 2006 to $4 billion a year later. Initially, Bear was able to make up for this shortfall by increasing its repo funding from $69 billion to $102 billion. To back this up, as late as Monday, March 10, 2008, Bear still held an $18