Monday, March 17, 2008

Bear Stearns shares for $2each anybody?

Bear Stearns goes cup in hand to Fed.
Northern Rock started just like this. Rumors for a couple of weeks that
it couldn't get funding in the market. Govt stepped in but couldn't stop
the inevitable.
Bear Stearns issues stem from both its business model, but also its
attachment to various hedge funds and other "exotic" products that are
now busy going belly-up e.g. Carlyle Group that had to abandon a $10bn
fund recently (apparently it has a leverage of $1 asset for every $33 in
debt!). Bear Stearns operates on leverage, now viewed as toxic in the
current market. So can it survive?
More importantly, isn't time we saw the much longed-for unwinding of
these CDO/CDS positions so that those that have to close shop can do so?
No govt (even with concerted global action) will be able to underwrite
almost a trillion of the stuff. And not all of it is hedging bad assets,
some is on prime mortgages.

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