Is the falling housing market problem spilling over to the investment market?
*Financial Times, July 18, 2007
“Bear Stearns on Tuesday told investors in two stricken hedge funds managed by the bank that one fund had lost all its value and the other had about nine cents remaining for every dollar invested following bad bets on the US subprime mortgage market.
The losses, especially for the less leveraged of the two funds, were worse than investors expected.
“They are a big investment house. They are supposed to be professional,” said one fund of funds executive. “There is nothing to do now except maybe go shoot the guy who did it.”
Bear Stearns declined to comment. The two funds at one point had more than $20bn in investments, much of it using borrowed money.
The funds were heavily exposed to the troubled subprime mortgage market through complex debt securities known as collateralised debt obligations (CDOs). Amid a sharp increase in late payments and defaults on subprime home loans – made to borrowers with patchy credit histories – the funds ran aground as creditors made margin calls.”
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