The Bear Trap

A collapsing Wall Street bank has to be sold off by the Fed. Why we are facing the biggest money crisis since the Depression

Alex Wong / Getty

Bernanke feared if Bear Sterns went under, then the financial markets would unravel.

It was, no question, one of the most dramatic episodes in American financial history. A famously scrappy Wall Street investment bank, Bear Stearns, went from seemingly healthy to dead meat in about five days. Federal Reserve Chairman Ben Bernanke, desperate to avoid a sudden collapse that might cause a full-fledged market panic, invoked a little-known 1930s legal provision to engineer a Sunday fire sale of Bear Stearns to banking giant JPMorgan Chase for a mere $2 a share. (Bear's stock price was $57 a week before, $171.51 in early 2007.)

With Bear shareholders virtually wiped out, half the firm's employees slated...

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