Could Bear Stearns Have Filed For Chapter 11?

04/10/2008 05:12 am ET | Updated May 25, 2011

Does Ben Bernanke know something the rest of us don't? Here's a little bit of today's testimony:

On March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for Chapter 11 bankruptcy the next day unless alternative sources of funds became available.

Now as I understood things, one of the key reasons for the Fed to intervene was precisely that Bear Stearns could not file for Chapter 11, under which it could have continued as a going concern and worked things out over time. Instead (I thought) Bear Stearns would have had to file for Chapter 7 bankruptcy: an immediate liquidation, with all the chaos to markets that implies.

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