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The Financial Times has in-depth coverage of Bear Stearns attempt to sell itself to JP Morgan to avoid seizing up with a lack of capital. (h/t Calculated Risk). The biggest fears are that a meltdown by Bear could trigger a system-wide run on banks and capital, acting as the oft-coined “tipping point” to a system-wide panic and subsequent crash.
From the article about Bear Stearns lack of capital and sale to JP Morgan:
The Federal Reserve, which on Friday provided emergency funds to Bear, and the Treasury are watching the situation closely. The authorities fear that, unless the crisis is resolved promptly, traders may turn their sights on other US and European banks.
“The Fed is most nervous about the systemic risk,” said one senior executive at Bear, the fifth largest investment bank in the US. “The government needs to stabilise the financial system.”Hank Paulson, Treasury secretary, on Sunday sought to allay fears that the crisis of confidence that hit Bear - which was undone by clients’ rush to withdraw funds amid rumours over its financial health - would spread to the rest of the financial sector. “The government is prepared to do what it takes to maintain the stability of our financial system,” he said. “That’s our priority.”
More as it develops.
So which “other banks” are going to be the first ones? And when is it going to switch from just the investment banks to commercial banks too?
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