Sunday, June 24, 2007

Bear Stearns Assumes Loans for One of the Funds (update #2)

The linked article from the Wall Street Journal is an excellent summary of the history and issues surrounding the two Bear Stearns hedge funds. It discusses how the issue was not only sub-prime mortgages, but also trading in the ABX index as well. This story is worth watching because 1) it is not over and 2) the success of the moves is not guaranteed.

Bear may have prevented a wider meltdown -- and kept many of the subprime bonds from plunging in value in a fire sale. Its injection of money also will help bring order to the market and pay back loans made by other big Wall Street banks to the Bear-managed hedge fund called the High-Grade Structured Credit Strategies Fund -- though prospects for a sister fund that relied even more on debt, the High Grade Structured Credit Strategies Enhanced Leverage Fund, remain in doubt. . . . And late Friday, as rivals continued to sell or wind down their positions with the one fund, it became clear that Bear may only need to lend $2 billion or less. . . .

Mr. Spector worked the phones . . . . The upshot: save the less leveraged fund that had better-quality assets and let the other fund collapse.

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