I guess this would be third installment in my series of the coming subprime mortgage meltdown occurring in the U.S. economy. Part I is here, Part II is here.
As my new favorite blog Calculated Risk is covering so well, Bear Stearns (BSC), the Collateralized Debt Obligation "kings", held a conference call this afternoon with investors to discuss the collapsing value of their "funds" invested in subprime mortgages. Turns out they've lost 91% of their value!
The peak at the Wall Street Journal article reporting as much:
The assets in Bear's more levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the other larger, less-levered fund are worth roughly 9% of the value since the end of April, these people said. The April valuations weren't immediately available but in March, before their sharp losses, the enhanced leverage fund had $638 million in investor money, while the other fund had $925 million.
Ouch!
Read more for free via Reuters and CBS Marketwatch.
A scary line from Reuters:
The collapse of the funds roiled financial markets and has sent a benchmark index of subprime mortgage bonds to record lows, reflecting concern that the worst is not yet over for the $7 trillion market for mortgage-related bonds.
But much of this story has been absent from the news, as our the corporate mainstream media breathlessly reports the DOW nearing a record high of 14,000. Never mind the US dollar is at its lowest value ever. Never mind the growing trade deficit. Never mind $75 a barrel oil, rising fuel and food prices. Everything is wonderful! See--14,000!!!
This guy ain't buying it--and I don't think you should either.
Stocks related to housing companies took a beating today (Stanley Furniture down 12% today, D.R. Horton tanked 3%). Bear Stearns is tanking in after hours trading, down 3.69%.
Many are speculating that the recent run-up was just a nonsense move by the big money people to squeeze out all the shorts, who are just waiting for this bubble to burst.
Will it tomorrow?
P.S. Good ol' Ben Bernanke is going to be discussing this mess in front of Congress later this week. Expect lots of happy talk.