American Treasuries By J. P. Morgan's 'Bear Starns'

In early September 2008, there was considerable credit crunch and difficulties in obtaining interbank loans, though the prize on American Treasuries in the commercial paper market and the interbank was below the average of the previous year. The demise of Bear Stearns by its acquisition by J.P. Morgan had established the view that there were financial organisations that were too big to fail, like investment banks. Creditors recovered money and were just punished shareholders, who recovered less than 10% of a year before actions had. Therefore, he evaded the deepening of systemic hazard, but evading moral risk of shareholders. This condition transformed considerably on September 15 after the liquidation of Lehman Brothers investment bank; it
Therefore, the measures adopted since mid-September have tended to regenerate the liquidity and solvency of these institutions. This has required strong intervention of public sectors such high amounts that were unimaginable until now. Specifically, to improve liquidity the public sector decided to guarantee the obligations of financial institutions, with some variations between countries, increased the amount of deposit insurance (or removing it in extreme cases) and guaranteeing interbank credits and placements in capital markets. These measures reduced the cost of liabilities of financial institutions and much of its liquidity was restored. However, the increase in liquidity has not translated into increased credit to the private sector, which is due to three reasons (Chancellor, 2009). First, among financial institutions is still some uncertainty regarding the renewal of its liabilities persists, although the situation tends to normalize. This requires them to keeps a higher position of liquidity than normal, which is defined in the aforementioned growth in bank reserves. This is a different of the liquidity trap, as it stops financial policy is capable to decrease interest rates on loans to the private sector. The second motive is the loss of bank capital and, thus, the need to restore the link between assets and capital. The third would be doubt about the creditworthiness of possible consumers, in a situation where the recession deepens. To resolve, the solvency problem of financial institutions, public sector focused initially to acquire the contaminated assets and, gradually, to capitalize on these organisations through national support. The problem with this measure is difficult to estimate the quality of the portfolio in a recession and thus determine the necessary capital contribution. Given the news appearing almost daily