THE PROBLEM
Bear Stearns sponsored two hedge funds through its subsidiary, Bear Stearns Asset Management.
The main fund, the High-Grade Structured Credit Strategies Fund, was made up of complex derivatives backed by home mortgages. During most of its life it was highly profitable but as the housing market began to stutter in late 2006 the returns suffered. This fund was leveraged at 35 times its invested funds.
As the market worsened the returns of the two funds sank. In urging investors to stay put the fund managers promised an eminent turnaround of the market (two Bear Stearns executives were subsequently indicted for misleading investors).
In June 2007, Bear Stearns pledged a collateralized loan of around $3.2 billion to arrest the
deteriorating
Bear Stearns sponsored two hedge funds through its subsidiary, Bear Stearns Asset Management.
The main fund, the High-Grade Structured Credit Strategies Fund, was made up of complex derivatives backed by home mortgages. During most of its life it was highly profitable but as the housing market began to stutter in late 2006 the returns suffered. This fund was leveraged at 35 times its invested funds.
As the market worsened the returns of the two funds sank. In urging investors to stay put the fund managers promised an eminent turnaround of the market (two Bear Stearns executives were subsequently indicted for misleading investors).
In June 2007, Bear Stearns pledged a collateralized loan of around $3.2 billion to arrest the
deteriorating