The recent testimony of certain Fed Chairmen notwithstanding (-ahem- Mr. Bernanke), brokers (like Bear) are not entitled to Chapter 11 protection. They are forced instead to resort to Chapter 7, i.e. forced liquidation. Moreover, the SIPC has special rights to hijack the process that suggest that it would be very ugly indeed for Bear. Wilkie Farr has an excellent piece(48Kb pdf) on the issues at hand:
...an entity that is classified as a “stockbroker” or “commodity broker” under the Bankruptcy Code is not entitled to seek chapter 11 protection to reorganize its business. Instead, the only chapter of the Bankruptcy Code available to a stockbroker or commodity broker is chapter 7, which is the liquidation chapter of the Bankruptcy Code. Moreover, notwithstanding the automatic stay provisions of the Bankruptcy Code, the Securities Investor Protection Corporation (“SIPC”) may file an application for a protective decree under the Securities Investor Protection Act of 1970 (“SIPA”) to stay all proceedings in a chapter 7 stockholder liquidation to allow SIPC to complete the liquidation of a stockbroker debtor that is a member of SIPC.
The rather significant abundance of speculation as to the cause of Bernanke's error remains unresolved. I like to think he had a hangover when he was put on the hot seat. He seems like the sort of guy that orders Sapphire and Tonics when out on the town, but plays the "Bourbon" card in his private study to impress the help.