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How Bear Got Burned

Posted By Barry Ritholtz On June 23, 2007 @ 4:06 pm In Corporate Management,Derivatives,Hedge Funds,Trading | Comments Disabled

Don’t walk, run to Calculated Risk’s explanation [1] for what really happened with those two Bear Stearn’s hedge funds:

"Let’s leave, for the moment, the question of the incredibly complex and
opaque layers of leverage, synthetic structures, derivatives swaps, and
mark-to-model valuations that transformed mere commonplace mortgage
loan write-downs into 23% losses of $600MM invested equity in
approximately 9 months on a fund created because its precursor fund,
which had dawdled along for two years or so generating a mere 1.0-1.5%
a month return, we are informed, just wasn’t good enough for the high
rollers who didn’t damn well put their money in hedge funds to earn
12-18% a year. This is really all about a bunch of subprime loans."

If you believe, as this NYTimes [2] article apparently does, that its the fault of those pesky sub-prime borrowers defaulting, well, then you just haven’t been paying any goddamned attention.

Go. Now [1].

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/06/how-bear-got-burned/

URLs in this post:

[1] Calculated Risk’s explanation: http://calculatedrisk.blogspot.com/2007/06/tale-of-two-hedge-funds.html

[2] NYTimes: http://www.nytimes.com/2007/06/23/business/23bond.html

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