Former staffers at now defunct Bear Stearns told the Financial Crisis Inquiry Commission (FCIC) today that "unsubstantiated" market rumors, a lack of investor confidence, a run on the firm and "unprecedented" decline in collateral value underlying structured finance products ultimately brought down the firm. Phil Angelides, chairman of the congressionally-appointed panel tasked with investigating the cause of the current crisis, said the prevailing sentiment at the start of today's hearing was that top staffers could not stop the financial fallout that eventually collapsed the firm. He noted that, according to their testimony, there may have been an "immaculate calamity" at the firm that could not be helped. Samuel Molinaro Jr., former chief financial officer and chief operating officer at the firm, set the stage in opening statements at the FCIC's hearing on "investment banks and the shadow banking system." He noted in prepared comments that Bear Stearns expected to report a profit in Q108 as the firm prepared its quarterly earnings during the first week of March 2008. "However, on Monday morning, unsubstantiated and inaccurate rumors were circulating in the market to the effect that Bear Stearns was facing a liquidity crisis," Molinaro told the panel. "Unfortunately, the rumors persisted through Thursday, with our credit spread widening dramatically and share price declining. By Thursday evening, these rumors, which were magnified by press reports, had escalated into a panic." The panic drove a sort of run on the firm, as prime brokerage clients began to request that their available cash and securities be moved to other brokers. Additionally, many of the firm's repo counterparties refused to lend to Bear Stearns, even on the basis of secured collateral, he said. "During the week of March 10, 2008, Bear Stearns suffered from a run on the bank that resulted, in my view, from an unwarranted loss of confidence in the firm by certain of its customers, lenders and counterparties," Paul Friedman, former senior managing director, told the FCIC. "In part, this loss of confidence was prompted by market rumors, which I believe were unsubstantiated and untrue, about Bear Stearns’ liquidity position." He noted this loss of confidence led to prime brokerage clients withdrawing cash, repo market lenders declining to roll over or renew repo loans, and counterparties to foreign exchange trades refusing to pay until the firm paid. "Although this loss of confidence in Bear Stearns was unwarranted given the firm’s strong capital position and substantial liquidity, it resulted in a rapid flight of capital from the firm that could not be survived," Friedman said in opening statements. Warren Spector, former president and co-chief operating officer said a number of efforts by the firm to save troubled financial products ultimately failed, eventually leading to the firm's collapse. "These [hedge]funds were invested in asset-backed securities, many of which were linked to residential mortgages, that experienced an unprecedented decline in value," he told the FCIC. Write to Diana Golobay.