At the last minute Friday morning, the Fed and JP Morgan agree to jointly back Bear Stearns for up to 28 days. In theory, this would alleviate counterparty concerns and encourage them to do business with Bear again. The tired Bear execs were thrilled to get this breather, but analysts take the news poorly. By the end of the day, all but three lenders had pulled their money. Adding insult to injury, Standard and Poor’s cut its long-term credit rating three levels to BBB, making the funding that they could get much more expensive.
Excerpt:
“By midday, the money is gone,” Friedman explained. “The customers are gone. The customer credits are to the point where the wire room shut down.” [..] Dave Schoenthal, the head of the firm’s foreign exchange desk, told Friedman that counterparties no longer would do business with the firm and that Friedman had to do something. “I’m just physically and emotionally a mess,” Friedman recalled, ” and I start to tell him, ‘Dave, I can’t help you. There’s nothing we can do.’ I actually find myself sitting at my desk sobbing, with my head down on the desk. Literally. The tears are coming out. The combination of the whole thing, plus not having slept in two days, I’ve lost it, and David goes ‘Oh,’ and he was graceful enough to wander out of my office.”
(excerpts from House of Cards: A Tale of Hubris and Wretched Excess on Wall Street)