Letters to the Editor
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What's in a Name
While Bear Stearns is not a bank in the same sense as Citibank or Chase, that distinction is blurry at best and non-existent at worst. The Glass-Steagall Act which separated investment banking aka Bear Stearns from Commercial banking i.e. Citibank was repealed in 1999 by Congress and Signed into law by Clinton. Did that repeal contribute to current crisis we're in today is a topic in itself. The recently announced Term Lending Facilities that would've gone into effect in a little over 3 weeks would've let banks such as Bear Stearns borrow at the discount window. Apparently it was too little too late.
As for Bear Stearn's woes, those are woes that can be faced by any bank (investment or otherwise). The run on the bank is not coming from depositors but other creditors, i.e. other banks. Bank and other financial institutions are tied together by a complex web of credits and debits. When it's running smoothly things are great and money flows freely, but when things go bad it resemble a house of cards. Bear's creditors demand immediate payment, therefore Bear can't make them and other payments, those other payments put another bank in precarious situation and so forth.
I had hoped the financial markets would've been more resilient and been able to work itself out a bit more. I guess I was wrong. This exact thing happened on smaller scale when Enron went belly up eroding the financial footing of the entire power marketing industry. That industry which I work survived a difficult 3 years, and Enron was by far the largest player in that industry. The collapse of Enron is more akin to the collapse of Citi, JP Morgan Chase, Goldman, and Merrill combined.
I'm personally a little surprised that Bear was too big too fail. If it was truly was too "big" then clearly there's something seriously wrong with risk management on Wall Street. And if it wasn't then the Fed is setting a dangerous precedent.