Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

In the United States the amalgamations began in earnest with Bear Stearns, which came to the point of failure on the night of March 13–14, 2008.14 If it had unloaded its portfolio of $200 billion in asset-backed securities and CDO at fire sale prices, the effect would have been catastrophic. It would have forced all the other banks to recognize crippling losses, spreading the panic. To the relief of the Treasury and the Fed, J.P. Morgan was interested in buying out Bear. Its hard-charging CEO, Jamie Dimon, was confident that his robust balance sheet put him in a position to safely pick over the carcass. But to finalize the deal, Dimon needed the right inducement. Under the emergency powers provided by section 13(3) of the Fed’s statutes, $30 billion in the most toxic assets were taken off Bear’s books by a SIV funded by the New York Fed.15 Then, at five a.m. on the morning of March 14, with the repo markets closed to Bear, the New York Fed lent $12.9 billion to J.P. Morgan, which J.P. Morgan then lent to Bear. After that, the die was cast. J.P. Morgan initially agreed to pay the laughable price of $2 per share for what was left of Bear. This compared with a valuation of $159 per share only one year earlier. When Bear’s shareholders protested, the price was raised to $10 per share. Whether at $2 or $10, J.P. Morgan was confident it would make a profit.