by Calculated Risk on 4/03/2008 01:26:00 PM

'Capital is not synonymous with liquidity.'
Christopher Cox, SEC

From MarketWatch: Bear Stearns crisis tests liquidity rules, Cox says

[Cox] said that Bear Stearns was adequately capitalized "at all times" during March 10 to 17, "up to and including the time of its agreement to be acquired by J.P. Morgan Chase.

But, facing skeptical lawmakers, Cox acknowledged that the firm had massive liquidity problems and that "capital is not synonymous with liquidity." He said the SEC is working with the five biggest Wall Street firms to make sure they increase their liquidity pools and redouble their focus on risk practices.
...
In one day -- March 13 -- Cox indicated, liquidity at Bear Stearns fell from $12.4 billion to $2 billion because of "the complete evaporation of confidence" in the company.

"I think the speed with which this happened is truly the distinguishing feature," the SEC chairman commented. "The Bear Stearns experience has challenged the measurement of liquidity in every regulatory approach, not only here in the United States but around the world."

From the WSJ: Regulators Defend Bear Rescue

"We judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households," Federal Reserve Bank of New York President Timothy Geithner said in testimony to the Senate Banking Committee.
...
"If you want to say we bailed out markets in general, I guess that's true," Mr. Bernanke told the Senate Banking Committee, adding the Fed's role in the rescue was necessary given the fragile state of financial markets. "Under more normal conditions we might have come to a different decision" with respect to Bear Stearns, Mr. Bernanke said.

And also from MarketWatch, here is Geithner's presentation: N.Y. Fed's Geithner explains Bear Stearns deal

Geithner was the key player in this deal.