What impact has the Bear Stearns fallout had on the overall markets? What positions did it have? Could it’s fallout be any kind of indication of what will happen as other sub prime resets occur? What are the answers to these questions and how will the markets fare in coming months?
Here’s a chart (via Google Finance) of Bear Stearns Companies Inc. (BSC) over the last 6 months compared to the S&P 500, the Dow and the Nasdaq.
Note the timing of how the fallout of the two Bear Stearns hedge funds relates to the falls in the market? How much lost investor confidence was tied to the Bear Stearns collapse?
How much were these funds worth? Reading Bear warns loans have little value suggests:
The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund reported $638 million of investor capital and gross long positions of $11.15 billion in the first quarter.
The Bear Stearns High-Grade Structured Credit Strategies fund had $925 million of investor capital and gross long positions of $9.682 billion through March 31.
Does this put the positions of these two funds somewhere near $20 billion dollars? How much of this was poorly managed and locked into sub-prime loans that began defaulting due to rising interest rates?
Let’s reexamine that chart of the adjustable rate mortgage reset schedule from my post Subprime fallout.
How long does it take for the resets of mortgage rates to subsequently start impacting the ability of people to repay their loans? What percentage of sub-prime credit borrowers would have put themselves in this position financially? How long can they live before their loan is defaulted if they’re over stretched? How does the $20 billion positions of the two Bear Stearns hedge funds compare to overall exposure of mortgage rate resets? How many companies could have similar poor exposure? How much of an impact will we see if there has already been $160 billion in resets and there is much more to come?
Unfortunately, there are many unanswered questions.