Falling collateral values triggered Bear Stearns’ liquidity crisis.

Evidence

In the case of Bear Stearns, as house prices fell and mortgage defaults increased, the value of its investments fell, and its “collateral calls” (what the people it borrowed from would accept to continue lending to the company) rose. As a consequence, Bear Stearns’ reputation fell and so did its capacity to borrow, which was a disaster given how much it was levered-up (how much debt it carried relative to its assets). — Mark Blyth, Austerity, 83

Categorization

• XREF: Connects to Mattei’s austerity work — this banking fragility is precisely the crisis that austerity then punished rather than relieved. — connects to: The 2008 crisis spread because banks’ liquidity depends on others’ willingness to stay illiquid — Mark Blyth, Austerity: The History of a Dangerous…, 98; Downgraded sovereign debt collateral trapped leveraged European banks in a funding spiral — Mark Blyth, Austerity: The History of a Dangerous…, 238; High bank leverage turns small asset declines into instant illiquidity and insolvency. — Mark Blyth, Austerity: The History of a Dangerous…, 84 (+3 more)

Broader Connections

• High bank leverage turns small asset declines into instant illiquidity and insolvency. #corroborates (0.82) — Mark Blyth, Austerity, 84
• Downgraded sovereign debt collateral trapped leveraged European banks in a funding spiral #corroborates (0.80) — Mark Blyth, Austerity, 238
• The 2008 crisis spread because banks’ liquidity depends on others’ willingness to stay illiquid #expands (0.78) — Mark Blyth, Austerity, 98
• Housing price declines triggered the 2008 financial crisis #qualifies (0.72) — Nick Srnicek, Platform Capitalism, 31