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A Bear Stearns Shit Sandwich in Switzerland

“This acquisition is attractive for UBS shareholders but, let us be clear... this is an emergency rescue,” said UBS Chairman Colm Kelleher.
“This acquisition is attractive for UBS shareholders but, let us be clear... this is an emergency rescue,” said UBS Chairman Colm Kelleher. Photo: Fabrice Coffrini/AFP via Getty Images
William D. Cohan
March 29, 2023

Fifteen years ago, just as it was beginning to look like Bear Stearns was about to go down the tubes, I remember thinking of that old Hemingway line about bankruptcy from The Sun Also Rises, how it happens “gradually, then suddenly.” After a prosperous 85-year run on Wall Street, some of Bear Stearns’ debt was trading at around 30 cents on the dollar. And its equity, which had traded as high as $171 a year earlier, was collapsing. The confluence of these events revealed to the markets that Bear’s bankruptcy was imminent. In fact, as I know from reporting my 2009 bestseller, House of Cards, Bear was ready to go kaput that March of 2008. The bankruptcy papers had already been drawn up.

Bear’s demise seemed like it would prove to be a financial disaster for its equity holders, who would presumably be wiped out. But, of course, since this is Wall Street, there were plenty of people who would likely be enriched by its demise. Many clever investors, who had bought Bear’s credit default swaps (betting correctly that the bank would default on its debt), or who had purchased short-dated put options (betting that its stock would go to zero, and fast) seemed poised to make a killing. They were certain to be rewarded for their astute analysis that Bear Stearns was about to eat a shit sandwich.