Friday, June 22, 2007

the abyss into which the housing market is about to plummet

UPDATE: Bear Stearns Hedge Fund Woes Stir Worry In CDO Market

The uncertain fate of two Bear Stearns hedge funds which loaded up on mortgage-backed securities that are now souring has cast a sharp light on the fragility of the collateralized debt obligation market, a strategist warned

Posted by bleakhouse @ 01:17 PM (793 views)
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3 thoughts on “the abyss into which the housing market is about to plummet

  • tyrellcorporation says:

    Can any of you guys in the finance industry tell me why this naked emporor hasn’t been pointed out and the markets are still bouyant? It seems to me (a layman’s point of view) that it’s become a game of chicken – the first person to blink will set off a stampede!

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  • The securities issued off the back of subprime mortgages are extremely illiquid and rarely trade. As such when the holders “mark to market” ie value them against a market price, they will tend to value them at cost as there is little or no trading price to measure them against. Bear Stearns are desperately trying to rescue this fund to stop lenders to the fund conducting a fire sale of the bonds because this will provide a benchmark value setting off a domino effect which could drag down other hedge funds holding these bonds in a domino effect. Unfortunately, the cat is out of the bag now and such a process will be difficult to stop.

    People have said that subprime is contained. I think this is wishful thinking and that we are simply seeing a lag until the real damage happens.

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  • Just read that Bear Stearns have forked out $3.2bn to bail this fund out. Papering over the cracks for a bit longer….

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