Why Bear Stearns collapsed

Bear Stearns was purchased by rival J.P. Morgan Chase for a fraction of its former worth, said Megan McArdle in an Atlantic blog, and the

What happened

Bear Stearns, the fifth-largest U.S. investment bank, was purchased by rival J.P. Morgan Chase for about $236 million, or $2 a share, after being bailed out by the federal government on Friday. Bear Stearns had a market value of $3.5 billion on Friday, and $20 billion in January 2007. The Federal Reserve is guaranteeing $30 billion in the bank’s “less-liquid assets”—mostly mortgage-backed securities that Bear can’t sell. “At the end of the day, what Bear Stearns was looking at was either taking $2 a share or going bust,” said one unidentified person involved in the deal. (The Wall Street Journal)

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