Alan Schwartz went on television on Wednesday to try to dispel the rumours mounting over Bear Stearns for the previous 48 hours. Speaking from a conference in Florida, he painted a sunny picture of the bank's finances.
The scenario clouded over rapidly. By Thursday night, Mr Schwartz was fighting a storm that threatened to deluge the company. The sandbags dropped by the Federal Reserve yesterday came late, very late indeed.
At the start of the week, the plunging value of mortgage-backed securities issued by a Bear Stearns affiliate was generating gossip of a cash shortage at the company itself, which a denial from Bear Stearns only perpetuated. Mr Schwartz's performance on CNBC on Wednesday – claiming there was no deterioration in the company balance sheet – only put a new spotlight on the firm. Soon, it no longer mattered if there was a real financial crisis at Bear Stearns. There was a very real crisis of confidence in the bank, and Britons need look no further than Northern Rock to see that when confidence fails, so do institutions.
By Thursday afternoon, trading desks buzzed with stories of increasing numbers of institutions and hedge funds refusing to trade with Bear Stearns.
At least six major institutions in London – including Commerzbank and Credit Suisse – had stopped giving prices to the US bank, one credit trader said.
"We tried to confront and dispel these rumours and parse fact from fiction," said Mr Schwartz. "Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated." Late on Thursday, it was clear to all Bear's executives that, at the current rate, it would soon run out of money to cover its trading obligations.
Calls were placed to the Fed and to JPMorgan Chase, its clearing bank: Please, help. The Fed met yesterday to approve the rescue plan, invoking a Depression-era law that enables it to provide funds beyond the banks that would normally be able to approach the "discount window" for emergency cash. Although JPMorgan, which is allowed to approach, is channelling the money to Bear, the Fed is at risk of incurring losses if the collateral proves insufficient – a fact that required a vote of Fed governors. Ben Bernanke, the Fed chairman, opened a speech yesterday with a nod to his efforts. "I had a busy morning," he said.