Bear Stearns bet the bank on subprime mortgages — and was sold for pennies in a fire sale

Bear Stearns was one of the largest investment banks in the United States. In the years before 2008, it had bet heavily on the US housing market, packaging and holding large amounts of subprime mortgage-backed securities — bets that looked profitable while house prices rose. As early as 2007, two of its hedge funds heavily exposed to subprime mortgages collapsed, an early warning of what was coming.

In March 2008, the bank faced a classic run: as confidence evaporated, the lenders and counterparties that funded its daily operations pulled back, and Bear Stearns ran out of cash. An investment bank that relies on short-term funding cannot survive a loss of confidence. Over a single weekend, with the Federal Reserve brokering the deal and guaranteeing $30 billion of assets, Bear Stearns was sold to JPMorgan Chase.

The price was humiliating: $2 a share (later raised to $10), for a firm whose stock had traded above $170 just a year earlier. The fire sale of Bear Stearns was the first major domino of the 2008 financial crisis, a signal that even a top Wall Street bank could fail almost overnight when its funding vanished and its bets on housing turned to losses.

Sold to JPMorgan for $2 a share, later $10, after a weekend fire sale brokered by the Fed, which guaranteed $30 billion in assets.

Bear Stearns bet heavily on subprime mortgage-backed securities, concentrating its risk in a single, fragile market.

As an investment bank, it relied on short-term funding that could vanish overnight if confidence fell — a structural fragility.

The collapse of its two subprime hedge funds in 2007 was an early warning that was not acted on decisively.

When confidence evaporated in March 2008, the bank faced a run and ran out of cash within days.

A bank that relies on short-term funding is only as stable as the confidence behind it. Bear Stearns concentrated its bets on subprime mortgages and funded them with money that could leave overnight.

The fire sale of Bear Stearns was the first major domino of the 2008 financial crisis and a warning of what was to come with Lehman Brothers six months later. It prompted the Federal Reserve to backstop the deal and intensified debate about 'too big to fail' and the regulation of investment banks. The lesson is durable: leverage amplifies losses, short-term funding can vanish overnight, and a firm concentrated in a single fragile market can fail faster than anyone expects when confidence turns.