William J. Polley

Actually, there are similarities between Bear Stearns. I worked at both firms and was at Continental when it melted down. Continental was highly levered and funded with short term hot money. It was overexposed to oil and gas and real estate. It teetered for months until it melted down in 24 hours. A rumor about liquidity started in Asia and as the markets opened in Europe the crisis accelerated and by the time the US markets opened, the bank was toast. It felt just as quick as the Bear situation.

Mark,

I think you meant this comment to go with the other post (on Continental). Thanks for writing. I wasn't there, so my knowledge is through the pages of history. It's true that the real meltdown (the run on the bank) took place on a single day. What struck me as the difference was the speed with which it was resolved. According to the written accounts, the run was in May and the FDIC didn't buy their assets until July. This was possible because, being a commercial bank, the Fed's discount window (and other creditors) kept them afloat for those two months.

Without direct access to the discount window, Bear Stearns went from failure to buyout in hours rather than months. Now, the new lending facility announced by the Fed last night should prevent that from happening again. (And so future episodes might play out more like Continental's did.) Too late for Bear Stearns, of course, and I would expect a lot of post-mortem examination of that fact.

Thanks again!