You mention collateralized overnight lending, but what about customers pulling cash from their accounts and naked short selling? What role did they play in Bear's collapse?
William Cohan responds:
The killer was the end of the overnight lending because that provided some $75 billion of Bear's financing needs every day. When that dried up, virtually overnight, then Bear had to rely on its other pockets of cash to meet the demands of customers pulling their cash from their accounts. That's why the $18 billion in cash that Bear had in its cash accounts was not enough.
Bear had also been using the cash - perfectly legally - in their hedge fund customer accounts, and when they demanded their cash back too, all of it combined to result in a run-on-the-bank that Bear quickly realized it could not withstand.
We still don't know the role short-selling played in Bear's demise. Supposedly the SEC has been investigating this for the past year but no news has come forth from it. One of the more interesting rumors was that hedge funds were shorting Bear Stearns at the same time as they were pulling their cash out of the firm. Nice.