Bear Stearns and Lehman Brothers Response

The near failure of the Bear Stearns and Lehman Brothers harmed the money market. The market faced a crisis of confidence as potential investors got scared of the market and were not willing to invest anymore. Further, financial institutions such as banks put stringent measures on the investors before advancing funds that were beyond the reach of the majority. Thus, the lenders stopped lending since they feared they will lose their money. This eliminated the desire for a mortgage in the market as the value of properties fell as the Bear Stearns were waiting for government bailout and the Lehman brothers failed to benefit from government and private investors bailout leading to eventual collapse (Kensil, & Margraf, 2012). Therefore, most individual investors lost their investment in properties and savings as the lenders auctioned their assets and used the savings held in banks to clear the outstanding interest on a mortgage. The Federal Reserve and Treasury department bailed out the Bear Stearns to keep it afloat and kept a watch on the Lehman brothers expecting the market to offer amicable solutions to its failing business. This resulted in the eventual collapse of the Lehman brothers.

Peer Response

Good Morning Sabrina. Your response to the issues raised in the questions was well thought. Your articulation of what was ailing the Bear Stearns and Lehman Brothers was great since you gave a clear explanation that touched on the failures of the market and the government role in the bailout of Bear Stearns (Mieszala, 2019). The market indeed lost confidence in bailing out the Lehman Brothers in contrast to the government expectations. Further, the bailout of Bear Stearns saved the mortgage market a great deal.

References

Kensil, S., & Margraf, K. (2012). The advantage of failing first: Bear Stearns v. Lehman Brothers. Journal of Applied Finance (Formerly Financial Practice and Education)22(2).

Mieszala, R. (2019). Impact of the collapse of the Lehman Brothers bank and the 2008 financial crisis on global economic security. Scientific Journal of the Military University of Land Forces51.

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