For Teachers: Lessons on the Financial Sector and Liquidity

Need help making sense of the Bear Stearns deal and Visa's IPO? Here's a breakdown.
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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) - Get Report

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) - Get Report

, and

Morgan Stanley

(MS) - Get Report

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) - Get Report

, 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) - Get Report

). The deal is anticipated to help prop up the wobbly financial services industry as major Visa stockholders include JPMorgan,

Citigroup

(C) - Get Report

and

Bank of America

(BAC) - Get Report

. 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.

This article was written by a staff member of The Stock Market Game.