Friday, March 14, 2008
The Krach: Run on Bear Stearns
Bear Stearns revealed today that its financial position had "significantly deteriorated" in the last 24 hours. The Fed stepped in by arranging for a rival bank, JP Morgan Chase, to provide short-term capital. Just two days ago, Bear Stearns vehemently denied Wall Street rumours that its liquidity was deteriorating. Toady Schwartz said: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity. We have tried to confront and dispel these rumours and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position over the last 24 hours had significantly deteriorated." On the New York Stock Exchange, Bear's shares dived by 50% to $28.59. Among the biggest investors in the bank is the British-born billionaire Joe Lewis, who bought a stake of 8% in September and is now sitting on losses estimated at $750m (£375m). Joseph Charles Lewis was born in 1937 in a working-class district of London where his father owned inns and pubs. Lewis left school in England when he was 15 to work in his father's business, learning the restaurant trade. He worked 14-hour days in the kitchen and as a waiter, taking on more responsibility and expanding the business in the 1960s. Lewis built a collection of "themed" entertainment clubs in London, with elaborate props and costumed staff, that have been described as the forerunner of the modern theme-restaurant industry in the United States. (Lesson: never invest in a business you dont understand).