For Teachers: Lessons on the Financial Sector and Liquidity

The Week in Review is provided by The Stock Market Game, which is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.

The Stock Market Game Week in Review: March 17-20

It was a wild week on Wall Street. The markets tumbled on Monday, Mar. 17 after JP Morgan Chase & Co. (JPM) agreed to pay just $2 per share to buy Bear Stearns (BSC), the country's fifth-largest investment bank .

Last week, Bear endured Wall Street's version of a run-on-the-bank. Investors feared the firm was experiencing liquidity problems and began withdrawing their money in droves. Unable to remain solvent without assistance, Bear Stearns sought help from the Fed as well as JP Morgan to save it from certain demise. A loan deal was worked out so the Fed would, in effect, loan Bear money through JPMorgan.

Wall Street was astounded with the terms of the deal as Bear's stock closed at $30/share on Friday, Mar. 21. It had been more than $70 per share earlier in the month and was down from $170 per share just last year.

In a strange twist, Bear Sterns stock rose to over $5 per share after the deal. The speculation is that the $2 share price offered by JP Morgan will be renegotiated upward to pacify hopping mad Bear Sterns shareholders who believe the Fed sold them down the river in the JP Morgan deal.

The buzz on the Street soon turned to "who's next?" Fortunately, additional investment firms like Lehman Brothers (LEH), Goldman Sachs (GS), and Morgan Stanley (MS) all reported quarterly earnings that were stronger than expected, which not only sent the markets soaring, but indicated they are not at risk to suffer the same fate as Bear Stearns.

Investors seemed to breathe a sigh of relief as the Dow shot up 420 points on Tuesday, Mar. 18, the biggest point gain in more than five years. The Dow also got an extra boost after the Federal Reserve slashed a key interest rate by three-quarters of a point in a battle to halt a spreading credit crisis. The strong Fed action seemed to persuade investors, at least for now, that the central bank plans to do whatever it can to keep the country out of a steep recession .

The other big newsmaker of the week was Visa Inc. (V), which raised $17.9 billion late Tuesday, Mar. 18 to complete the largest initial public offering (IPO) in U.S. history. The world's largest processor of credit and debit cards sold 406 million shares at $44 per share to easily surpass the previous U.S record IPO of $10.6 billion set by AT&T Wireless in 2000 (now a part of AT&T (T)). The deal is anticipated to help prop up the wobbly financial services industry as major Visa stockholders include JPMorgan, Citigroup (C) and Bank of America (BAC). The proceeds of the deal would bring these firms much needed capital , which could help strengthen their balance sheets .

To review the IPO concept with your students, please be sure to check out the "Happy IPO" and "Sweet Stock" editions of the Stocktalk newsletter. Both issues explain what an IPO is and how the stock market helps companies raise money for their growth. You can find both editions in the "Publications" section of the Stock Market Game Web site's Teacher Support Center.

To learn more about The Stock Market Game, go to www.stockmarketgame.org.

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