Upside Down Mortgage

Subprime Investments

Question: hi does the Bear Stearns investment bank affected by subprime? why did they affected? what did they do wring?

but what's going now in Bear Stearns bank? which one is first: JP Morgan bought Bear Stearns investment bank or US Government saved the Bear Stearns bank?

Answer: Bear Stearns was a highly leverage investment bank that was affected by the liquidity credit crisis. Bear had a lot of very short term debt (overnight repo agreements) that they could not renew because their creditors feared that they would not get paid back. Because Bear's funding was essentially withdrawn, they had to use their liquid assets to pay back their creditors and would have run out of liquid assets. Bear would have filed bankruptcy if JP Morgan did not come to their rescue. The Federal Reserve "encouraged" JP Morgan to rescue Bear by providing JP Morgan with certain guarantees of the losses on Bear's assets.

The problems with subprime assets started the credit crisis, but the very problems associated with subprime assets were also in prime assets too. Basically, too much leverage on assets for which the credit risk (even on prime) was not adequately priced.

Too Big To Bail - Ayn Rand Institute Op-Ed by Alex Epstein

If you're new around here, you might want to subscribe to our Upside-Down Mortgage RSS feed. It's quite likely the only feed of it's type on the internet!