Bear Steps Up
Bear Stearns moves to salvage at least one of its two troubled hedge funds. Wall Street needs to take a breath and look back to Autumn 1998 and the fall of Long Term Capital Management. This was a leveraged hedge fund that made a wrong bet and creditors began calling their debts. For a few weeks after LTCM's implosion there was no market in emerging market debt and the spread on high yield debt widened. Wall Street panicked but the markets came back fast. It is the same for the subprime debt. It looks dire now, but with each passing day Wall Street is figuring how to better price it and how to better factor in its risk. In a short time, Wall Street will be able to price the assets in the two Bear Stearn's funds. Firms that get too anxious and dump their assets at fire-sale prices are hurting themselves.