Bushonomics 0
Bank runs (emphasis added).
I’ve heard about bank runs from my mother. They happened in the Great Depression.
In a move that eclipsed the enforced rescue of Northern Rock (a British bank–ed.) six months ago, the 85-year-old Wall Street institution admitted it was looking for a buyer after being thrown a temporary lifeline by rival bank JP Morgan Chase guaranteed by the US central bank.
George Bush sought to calm fears of a deep recession in the world’s biggest economy when he said that despite the current “tough times”, the US economy remained fundamentally sound.
But the president’s words did nothing to dampen speculation on Wall Street that other blue-chip investment banks may also be facing a cash crisis as a result of their exposure to the collapsing US real estate market.
The ratings agency Standard & Poor’s responded to the rescue announcement by cutting Bear Stearns’s credit rating to BBB – the second-lowest investment grade – putting more pressure on its beleaguered stock.
Speculation about Bear had mounted for days. By Thursday, worried institutional clients were withdrawing large sums of money. That evening, the Fed’s governors unanimously voted to come to the bank’s aid by guaranteeing a 28-day loan provided by JP Morgan Chase. “Bear Stearns has been subjected to a significant amount of rumour and speculation over the past week,” said Bear’s chief executive, Alan Schwartz. “Concern on the part of counter parties, on the part of customers and lenders, got to the point where a lot of people wanted to get their cash out.”
