By Phil Angelides | MAR 19, 2018
Ten years ago this week, Bear Stearns, the high-flying Wall Street investment bank, collapsed after years of reckless risk-taking and regulatory neglect. Its stunning failure blindsided the public officials charged with safeguarding our financial system and marked the moment when the simmering financial crisis burst into full public view. Before the crisis passed, millions lost their homes and jobs, communities across the country were devastated and trillions of dollars of wealth were wiped away.
The anniversary of Bear’s demise might have gone unnoticed but for the disturbing push by the banking industry to undo a number of the reforms enacted in the wake of the crisis.
Bear’s failure shouldn’t have come as a surprise to regulators. It was wildly overleveraged, with only $1 in equity for every $38 in debt, meaning a drop in asset values of less than 3% would wipe out the firm. The firm was knee deep in subprime mortgages — originating loans, bundling mortgages into securities and bundling those securities into other securities. To sustain itself, Bear was borrowing up to $70 billion in the overnight markets, loans that had to be renewed each day. If those loans were pulled, the firm would collapse — they were and it did.
The only missing ingredient for another crisis is Wall Street excess — as sure to come as the sun is to rise.
Happy 10th Anniversary, America.
Phil Angelides, former California state treasurer, was chairman of the Financial Crisis Inquiry Commission, which conducted the nation’s official inquiry into the 2008 financial crisis.