On March 13, Bear advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated, and that it would be forced to file for bankruptcy the next day unless alternative sources of funds became available.
Credit booms have often led to credit busts and sometimes to painful economic downturns. When the bust comes, those who have overborrowed tend to sharply reduce their spending. Defaults typically rise faster than had been expected, which may put financial institutions into distress. These effects may combine to bring a serious economic downturn.