The Bear Stearns story...

The last topic of the book is devoted to the demise of Northern Rock. Just a few months on and we now have the US Investment Bank, Bear Stearns, heading into a probable forced sale to JP Morgan Chase. The Fed has been heavily involved in this whole process as it made the decision last Friday to offer emergency financial support to Bear Stearns through the intermediary of JP Morgan. This facility was made available via the Discount Window which is only available to commercial banks. With this step the Fed has acted dramatically to extend its normal role of lender of last resort (see page 156 in the book). In the wake of the Worldwide credit squeeze it is clear that financial institutions have become reluctant to lend cash to Bear Stearns. The damage of the rumours spreading wildly about the bank's financial position meant that Bear Stearns would inevitably run into severe problems. The worry now for financial markets is that after Northern Rock and Bear Stearns who will be next? Until there is a genuine return of confidence in the financial sector the Stock Markets will remain very nervous.