The Bear Necessities : The Indicator from Planet Money The man who wrote the book on the collapse of Bear Stearns talks about what happened a decade ago and where we are today.

The Bear Necessities

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


This week marks a very significant week in the economic history of this country. Ten years ago this week, an investment bank called Bear Stearns got into financial trouble. It was one of the first real hints of the financial catastrophe that was about to unfold. This is THE INDICATOR. I'm Stacey Vanek Smith. Today's indicator is $2. That was the price Bear Stearns was offered for its shares.

WILLIAM D COHAN: Inconceivable. It was inconceivable that this could happen.

VANEK SMITH: William D. Cohan is the author of "House Of Cards," a book about Bear Stearns' collapse. He also worked as an investment banker for 17 years.

COHAN: People thought the $2 a share with some sort of crazy typo.

VANEK SMITH: Eventually, they did get more than that - about $10 a share. But even that was really low. The year before, one share of Bear Stearns stock had been worth more than $170. Today on the show, we take a look back at the collapse of Bear Stearns.


VANEK SMITH: The first thing to remember about Bear Stearns is that it was not your average investment bank.

COHAN: It was a renegade firm. It was a swashbuckling firm.

VANEK SMITH: William says Bear was very established. It was 85 years old. But it also lived on the edge, dealt with a lot of risky stuff. It had a big junk bond business, and it was deep into mortgage-backed securities, the financial instruments that were at the root of the financial crisis.

COHAN: Yeah. I would put them as sort of the Russell Crowe of investment banking - tough and badass, crazy like a fox, you know, always figuring out ways to make money. You know, Bear Stearns - this is an amazing fact - had never lost money in 85 years in any quarter of being in business.

VANEK SMITH: Until mortgage-backed securities started to look shaky. They were these bundles of home loans that have been sliced up and sold to investors. And when those home loans started to fail, investors started getting nervous that mortgage-backed securities weren't worth what they thought. And mortgage-backed securities were a big part of Bear's business. Seemingly out of nowhere, this company that basically never lost money was totally out of money. Bear was facing bankruptcy.

In a last-ditch effort, it reached out to the Federal Reserve and government officials and said, hey, can you help? But this seemed like a total Hail Mary. The government didn't really bail out investment banks. And Bear Stearns wasn't especially enormous. And most of the people who had money in the bank were wealthy investors. Still, when the Fed examined the situation, they made this really surprising and really unprecedented decision. They said they were going to try to make sure that Bear didn't fail.

COHAN: What was discovered very quickly was that Bear Stearns - rather than being too big to fail, Bear Stearns was actually too interconnected to fail. It had too many ties to other Wall Street firms that owed money to too many other Wall Street firms and banks.

VANEK SMITH: To save Bear, the Fed decided that Bear would need to sell itself off to another financial institution - one that could take over its assets and take responsibility for what it owed. So it started arranging these weird informational dates with banks and financial firms to try and find a buyer for Bear.

COHAN: A lot of firms were invited to come kick the tires, so to speak.

VANEK SMITH: Really? It was like the Feds called them and said, like, hey...

COHAN: Oh, yes.

VANEK SMITH: ...Who wants to...

COHAN: Come by.

VANEK SMITH: It was, like, an on an auction block.

COHAN: Yes, absolutely. They - over that weekend, they created a data room as best as they could, and they paraded one potential buyer in after another.

VANEK SMITH: But by this point, says William, a lot of banks were nervous. Many were deeply invested in mortgage-backed securities. And there was just one that seemed to be solid enough financial shape to actually buy Bear Stearns - JPMorgan Chase. And, Williams says, JPMorgan Chase knew this. It knew the Fed needed it to buy Bear and had no other real options. So JPMorgan set some terms. First, it insisted that the Fed separate out Bear Stearns' especially toxic assets. Just take them out of the equation. And then it made a really low offer for Bear Stearns - $2 a share. Williams says he was just shocked by this.

COHAN: It was inconceivable that this could happen - literally. It was just not conceivable that Bear Stearns, which - stock price had been, you know, close to $200 dollars a share. And people thought that $2 a share was some sort of crazy typo. And it must have been at least $20 a share, I remember people thinking. And then, you know, I remember somebody taped to the revolving door going into the new Bear Stearns headquarters at 383 Madison Avenue a piece of paper with just $2 on it, capturing in a split second the surprise of everybody - aghast. I mean, it was just literally beyond the imagination of anybody that this could happen.

VANEK SMITH: In the end, JPMorgan did end up paying $10 a share for Bear. But still, it got Bear for around a billion dollars. And Bear had been worth about $20 billion just a year before. Of course, a lot had changed in that year.

Was this a good deal, looking back, for JPMorgan?

COHAN: Oh, I think it was, by and large, yes, a very good deal. They got some bankers and traders. They got a brokerage business. Basically, Bear Stearns had, you know, a billion dollars' worth of cash flow. But they bought a bunch of lawsuits along with the assets that they bought. And that cost them a fair amount of money. So I would say probably in the end, they probably got out of that deal a shiny, new building more than anything else.

VANEK SMITH: (Laughter). And once this deal went down, says William, Wall Street kind of exhaled. Everybody thought, OK. Bear Stearns - they were a little crazy. They went too far. But that's not us.

COHAN: We'll be OK here. This was just that crazy group of Bear Stearns pirates - got what was coming to them. You know, Lehman's going to be fine. Merrill is going to be fine. Morgan Stanley is going to be fine. It's all good. It's all good. Let's just - you know, these are not the droids you're looking for.

VANEK SMITH: (Laughter).

COHAN: Carry on.

VANEK SMITH: And William says that was the real problem. When the Fed bailed out Bear Stearns, everybody kind of relaxed. If Bear had been allowed to fail, he says, the panic would've happened earlier. And he thinks the financial crisis might have been less severe. Now, 10 years later, the economy has mostly recovered, and the banks are mostly doing well.

Did this change Wall Street?

COHAN: Absolutely, absolutely changed Wall Street. There used to be hundreds of investment banks. Now there are, you know, a handful. These firms are much bigger, much better capitalized than they were. They're much more closely watched, including having regulators in their offices on a daily basis, looking over the loans that they make and the deals that they do and their balance sheets.

VANEK SMITH: A lot of this has to do with rules that were put in place after the financial crisis - rules that made banks keep more cash on hand and restricted some of the risks they could take. A lot of people say those regulations were too strict. But they're holding this part of the economy back. Just this week, Democrats and Republicans in the Senate passed a bill that would relax some of these regulations.


Copyright © 2018 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.