14 March 2008: Bear Stearns gets a lifeline that was not enough
Bear Stearns, the fifth-largest US investment bank, received emergency funding from the Federal Reserve via JPMorgan after a run by clients and lenders. The shares fell nearly half in a day. Over the weekend, regulators brokered a sale to JPMorgan at a fraction of the bank's former value. Just a week earlier Bear's chief executive had insisted the firm's liquidity was fine.
The lesson: A bank's confidence is its capital; once lenders start to run, the end can come in days.
What it meant for investors
$1,000 in Bear Stearns at the start of 2008 → $114 today, vs $4,626 in the S&P 500.
We start the clock at the start of 2008, the year it happened. That is a loss of $886, while a plain index fund over the same years made $3,626.
What Bear Stearns teaches: Investment banks run on confidence and short-term funding; when either disappears, even a firm worth billions on Friday can be worth almost nothing by Monday.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 2008 | $88.00 | $114 | $4,626 |
| 2010 | $10.00 | $1,000 | $6,071 |
| 2012 | $10.00 | $1,000 | $5,312 |
green = beat the S&P 500 · red = lost money
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