Bear's Woes Test Markets' Mettle

The near-collapse of two big Bear Stearns Cos. hedge funds marks an important test of the financial markets' resiliency. Stocks and bonds fell broadly yesterday as word spread that several investment banks were having trouble finding buyers for subprime mortgage securities they pulled out of the teetering hedge funds at the Wall Street firm. Meantime, market indexes that track the mortgage and corporate debt market fell as investors saw their risk rising. Securities and Exchange Commission Chairman Christopher Cox said the agency was tracking Bear developments, but didn't see systemic problems. Still, if recent history is any guide, the stock and bond markets might be expected to bounce back quickly. In just the past few years, the markets have been tested by turmoil in the automobile sector, rising global interest rates, a weakening dollar and the housing slowdown. They quickly bounced back after brief spasms of risk-aversion in every case. The last bout of jitters was just this past February, when problems in the subprime mortgage sector sparked brief selling. Ample amounts of cash in the hands of investors -- something investment pros call liquidity -- and a growing confidence in the market's resilience, have helped them to overcome worries. But some investors wonder if this case could be different.