BusinessWeek is reporting (hat tip: Housing Wire) that the SEC has opened an inquiry in to the actions taken by Bear Stearns in regards to one its two troubled hedge funds. From the article:
BusinessWeek has learned that the Securities & Exchange Commission recently opened a preliminary inquiry into the near-collapse of Bear Stearns’ High-Grade Structured Credit Strategies Enhanced Leveraged Fund. People familiar with the inquiry say regulators are interested in learning how the Wall Street investment
firm came to dramatically restate the April losses for the 10-month-old fund, which invested heavily in securities backed by subprime mortgages, or home loans to consumers with shaky credit histories.
The fund, which nearly collapsed after it reported a massive drop in value, has been under intense scrutiny and speculation from investors over the past few weeks as its ability to remain solvent was severely tested. It has been the latest soap opera the latest soap opera in the subprime meltdown.
More from the article:
The restatement, and the prospect that other hedge funds could face the same situation, has sparked widespread concern on Wall Street about the subprime housing market and the opacity of prices for assets underlying many of the securitized mortgage bonds that have flooded the market in recent years.
This last bit is crucial. As Wall Street banks have backed away from subprime mortgage bonds hedge funds have quickly stepped up to buy those debt obligations. This has kept the liquidity in the subprime market. If the hedge funds get skittish and stop buying subprime debt the subprime market could quickly disintegrate even further in to near non-existence-there would be no money to borrow.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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