Bear Raid in the UK

Many people believe that Bear Stearns was brought down by a classic "bear raid" – where a rumor gets started, snowballs, and becomes self-fulfilling. In nervous markets, someone who shorts a bank and then starts a rumor that it’s in trouble can end up destroying billions of dollars in value.

You think such a thing doesn’t happen in reality? Well, it just did, in London. False rumors started getting passed around the market about major high-street bank HBOS, and before long the Bank of England staged an unprecedented series of phone calls to media outlets to try to extinguish the rumors before they became self-fulfilling.

Expect someone to try the same stunt in the US, before long.

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