Bear Stearns Says Hedge Fund Worthless (subprime fallout)

[w¡n9Nµ7 §£@¥€r 123]

NEW YORK - Bear Stearns Cos. told clients Tuesday that a meltdown in the subprime mortgage market has made the assets from two of its flagship hedge funds almost worthless.

Both funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky investors began to default. The assets in one of the funds are essentially worthless, while another is worth 9 percent of its value at the end of April, according to a document obtained by The Associated Press.

...

"In light of these returns, we will seek an orderly wind-down of the funds over time," Bear Stearns said in a letter that will be sent to clients who might have questions about the funds. "This is a difficult development for investors in these funds, and it is certainly uncharacteristic of Bear Stearns Asset Management overall strong record of performance."

http://www.forbes.com/feeds/ap/2007/07/17/ap3924116.html

[GaryC 7]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

[w¡n9Nµ7 §£@¥€r 123]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

This news specifically means if you had invested in these hedge funds, you just lost all or most of your money.

The bigger picture, and this is my opinion only, is this - investors of other securities that have stakes in subprime mortgages will now wonder about the values of their holdings - and create downward pressure on prices of those securities.

That, in turn, will make financial institutions less likely (perhaps much less likely) to actually issue subprime mortgages if they can't securitize those mortgages and sell them.

So yes - in the end, people who can not verify their assets/income and/or have less than perfect credit will be less able to find a mortgage. They will have to become homeowners the old fashioned route - make better money, save enough money for a downpayment and pay your bills on time.

None of which is a bad thing.

[GaryC 7]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

This news specifically means if you had invested in these hedge funds, you just lost all or most of your money.

The bigger picture, and this is my opinion only, is this - investors of other securities that have stakes in subprime mortgages will now wonder about the values of their holdings - and create downward pressure on prices of those securities.

That, in turn, will make financial institutions less likely (perhaps much less likely) to actually issue subprime mortgages if they can't securitize those mortgages and sell them.

So yes - in the end, people who can not verify their assets/income and/or have less than perfect credit will be less able to find a mortgage. They will have to become homeowners the old fashioned route - make better money, save enough money for a downpayment and pay your bills on time.

None of which is a bad thing.

This is something that has had me worried. 3 years ago I had a very messy divorce and it forced me into bankruptcy. Since then I have been building my credit back up, getting and paying off on time credit and improving my income. I am hoping that next year I will have put enough distance between me and that bad time that I will be able to get a mortgage. But if they are going to want +10 grand downpayment for a 100G house I would have to wait another year or raid my 401K.

[w¡n9Nµ7 §£@¥€r 123]

This is something that has had me worried. 3 years ago I had a very messy divorce and it forced me into bankruptcy. Since then I have been building my credit back up, getting and paying off on time credit and improving my income. I am hoping that next year I will have put enough distance between me and that bad time that I will be able to get a mortgage. But if they are going to want +10 grand downpayment for a 100G house I would have to wait another year or raid my 401K.

My amateur advice: don't touch your retirement money. Pretend it doesn't exist.

[homesick_american 1]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

Yes, that is pretty much what it means. People with dinged-up credit will have a harder time getting a loan, but they were giving mortgages to almost anybody over the last few years. Conservative lending practices were thrown out the window.

[w¡n9Nµ7 §£@¥€r 123]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

Yes, that is pretty much what it means. People with dinged-up credit will have a harder time getting a loan, but they were giving mortgages to almost anybody over the last few years. Conservative lending practices were thrown out the window.

Exactly. And as a corollary, they were building for everyone, too. Neighborhoods in economically underperforming areas with high proportion of subprime mortgage holders could be in a lot of trouble if this snowballs.

[homesick_american 1]

Does that mean that those of us with "less than perfect credit" are now going to have a hard time getting a loan? I am not sure I understand what the "sub-prime" market encompasses.

This news specifically means if you had invested in these hedge funds, you just lost all or most of your money.

The bigger picture, and this is my opinion only, is this - investors of other securities that have stakes in subprime mortgages will now wonder about the values of their holdings - and create downward pressure on prices of those securities.

That, in turn, will make financial institutions less likely (perhaps much less likely) to actually issue subprime mortgages if they can't securitize those mortgages and sell them.

So yes - in the end, people who can not verify their assets/income and/or have less than perfect credit will be less able to find a mortgage. They will have to become homeowners the old fashioned route - make better money, save enough money for a downpayment and pay your bills on time.

None of which is a bad thing.

This is something that has had me worried. 3 years ago I had a very messy divorce and it forced me into bankruptcy. Since then I have been building my credit back up, getting and paying off on time credit and improving my income. I am hoping that next year I will have put enough distance between me and that bad time that I will be able to get a mortgage. But if they are going to want +10 grand downpayment for a 100G house I would have to wait another year or raid my 401K.

Don't touch your 401k just to get a mortgage. Work and save. With your credit rating you'll need more than a 10% down payment anyway to get a decent interest rate or possibly even a mortgage to begin with. A bankruptcy will stay on your record for 7-10 years depending on the type. Some lenders will require 25-50% down with such a recent bankruptcy.

[w¡n9Nµ7 §£@¥€r 123]

Dollar Slumps to Record Low Versus Euro on Bear Stearns Losses

July 18 (Bloomberg) -- The dollar fell to a record low against the euro and dropped versus the yen after Bear Stearns Cos. reported hedge fund losses, fueling speculation investors will spurn U.S. assets as the economy slows.

...

The dollar reached a 26-year low of $2.0496 against the pound.

http://www.bloomberg.com/apps/news?pid=206...&refer=asia

[homesick_american 1]

Dollar Slumps to Record Low Versus Euro on Bear Stearns Losses

July 18 (Bloomberg) -- The dollar fell to a record low against the euro and dropped versus the yen after Bear Stearns Cos. reported hedge fund losses, fueling speculation investors will spurn U.S. assets as the economy slows.

...

The dollar reached a 26-year low of $2.0496 against the pound.

http://www.bloomberg.com/apps/news?pid=206...&refer=asia

Shoulda waited to convert that chunk of money; I could have made $1500 extra.

[GaryC 7]

And yet the stock market reached a new high today. What is causing the disconnect?

[w¡n9Nµ7 §£@¥€r 123]

U.S. Treasuries Rise; Bear Stearns Loss Feeds Demand for Safety

July 18 (Bloomberg) -- U.S. Treasury notes rose as losses at hedge funds run by Bear Stearns Cos. fueled speculation mortgage defaults will sap demand for riskier assets and curtail economic growth.

Ten-year yields declined to the lowest in a week after Bear Stearns told investors in a fund betting on subprime mortgage loans that they won't get their money back. The yields have fallen 30 basis points from a five-year high on June 13 as losses on subprime debt curbed demand for corporate bonds, emerging-market debt and stocks.

``The subprime meltdown is spreading to higher asset classes and that's leading to a flight to quality in Treasuries,'' said Yutaka Grivel, a trader at Barclays Capital Japan Ltd. in Tokyo. ``We're bears on the U.S. economy for the second half of the year.''

http://www.bloomberg.com/apps/news?pid=206...&refer=home

And yet the stock market reached a new high today. What is causing the disconnect?

The Bear Stearns news wasn't on the wires till after the markets closed.

[homesick_american 1]

And yet the stock market reached a new high today. What is causing the disconnect?

Because a lot of analysts don't seem to feel that the subprime meltdown is going to have much of an effect; the consensus is that if housing and subprime was going to really drag the economy it would have already done so.

I think the DJIA popped up today because of the inflation report and some earnings that were released today. Plus, there's a lot of momentum.

[homesick_american 1]

The Bear Stearns news wasn't on the wires till after the markets closed.

True; I keep hearing the Dow is due for a correction. Maybe this is what it needs.

I'm keeping a closer eye on the S&P 500 personally; the Dow only looks at 30 companies so to me it isn't a terribly accurate indicator of the overall state of the economy.

[GaryC 7]

I may just wait until I have 5+ years after my bankruptcy before trying to get a house. Shoot, at my age I don't have the time to pay it off anyway and I plan to retire to the Philippines in 12 years. I may just screw it alltogether and just stay a renter. With the housing markets all over the place who knows if it will be a good investment anyway. I am saving 15% of my gross now in my 401K, I may just bump that up to 20% and retire on that. In PI you can live like a king on $3000/month and I will break that easy in 12 years.