A Money View of the FCIC Report

The video tutorial explains the role of clearing in the financial crisis involving Bear Stearns, focusing on how Bear Stearns financed its securities with overnight borrowing. It highlights the involvement of JP Morgan as the clearing member, which unwinds RP loans during the day and provides loans to Bear Stearns. The tutorial emphasizes the risk JP Morgan faces if Bear Stearns fails to repay the loan, as JP Morgan remains liable for the deposit owed to the mutual fund.

What financial instrument did Bear Stearns use to finance its securities holdings?

• Overnight borrowing

• Credit default swaps

• Equity shares

• Long-term bonds

What role do money market mutual funds play in Bear Stearns' financing strategy?

• They provide long-term loans to Bear Stearns.

• They act as intermediaries between Bear Stearns and JP Morgan.

• They use Bear Stearns' securities as collateral for their own loans.

• They use the securities as assets to back their shares.

What happens to RP loans during the day according to the video?

• They are sold to investors.

• They are transferred to another bank.

• They are unwound by the clearing member.

• They are converted into long-term loans.

What is the consequence if Bear Stearns fails to repay the loan by the end of the day?

• The mutual fund loses its assets.

• JP Morgan is responsible for the deposit owed to the mutual fund.

• Bear Stearns' assets are seized by the government.

• The loan is extended for another day.

Why is the financial arrangement described in the video considered risky?

• Because it involves long-term investments.

• Because it depends on the stock market performance.

• Because Bear Stearns might not repay the loan, leaving JP Morgan liable.

• Because it requires constant monitoring by the Federal Reserve.