On June 1, Bloomberg reported that Bear Stearns, the fifth-largest U.S. securities firm, was, “hawking the riskiest portions of collateralized debt obligations to public pension funds.” These lower tranches of CDOs are now called “toxic waste.”
“A highly leveraged Bear Stearns hedge fund that made bad bets on the subprime mortgage market was on the brink of failure.” (Tuesday’s Financial Times.) Investors and lenders to the fund face large losses, and the fund’s failure could freeze confidence in CDO’s.
Bloomberg quotes an economic advisor: “It’s not just a housing recession anymore, it looks more and more like an economic recession.”