Wall Street pulled $10.4bn (£5.19bn) of cash and other highly liquid assets out of Bear Stearns in a single day this month, leaving it with only $2bn and forcing the stricken securities firm to approach JPMorgan Chase in desperation, it emerged yesterday, The Times reports.
Bear Stearns, which agreed a fire sale to JPMorgan on March 16, four days after the mass withdrawal of funds, saw its so-called liquidity pool evaporate after customers and counterparties suffered a crisis of confidence in it, according to Christopher Cox, chairman of the US Securities and Exchange Commission (SEC).
Bear's liquidity pool, which stood at $21bn early this month, fell dramatically from $18.1bn to $11.5bn on March 10 “as rumours spread about liquidity problems at Bear Stearns, which eroded investor confidence”, Mr Cox wrote in a letter to Nout Wellink, chairman of the Basel Committee on Banking Supervision, which has been seen by The Times.
CITIGROUP HAS CALLED FOR RADICAL MEASURES to end Britain's financial crisis, rebuking the Bank of England for moving too slowly to meet liquidity needs and waiting too long to head off an economic downturn, The Telegraph reports.
"The downside risks to UK growth are sufficiently severe that the Bank of England should now be adopting a more determined approach to easing financial market strains. Relative inaction has a cost," said the bank's chief UK economist, Michael Saunders.
The blunt criticisms come as Britain's interbank borrowing market began to sieze up again.
THE NOBEL PRIZE-WINNING ECONOMIST Joseph Stiglitz has blamed the "unconscionable" system of generous bonuses paid to investment bankers for exacerbating the global credit crisis, The Independent reports.
"The system of compensation almost surely contributed in an important way to the crisis," said Professor Stiglitz, a former chairman of the President's Council of Economic Advisers, under Bill Clinton. "The system was designed to encourage risk taking – but it encouraged excessive risk taking. In effect, it paid them to gamble. When things turned out well, they walked away with huge bonuses. When things turn out badly – as now – they do not share in the losses."
Despite the turmoil in the markets, bank failures and write-offs amounting to $120bn (£60.5bn), City bonuses will top £6bn this year, though that will be down on the £7.2bn estimated to have been paid out in 2007, which was itself a reduction on the peak of £8.8bn in 2006. This year's bonuses will be the lowest since 2003.
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