The big financial news this week-end is Bear Stearns’ decision to put $3.2 billion into its struggling hedge fund to try to stave off collapse of both the fund and the larger mortgage securities market. An academic paper, “How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions,” presented early this spring at the Hudson Institute suggests that the mortgage market has been structurally realigned, and that the whole system is far riskier than rating agencies, regulators or investors have recognized. If the paper is right, Bear Stearns has taken the financial equivalent of striking up the Titanic band to play “Nearer My God to Thee.”
This is a companion discussion topic for the original entry at https://talkingpointsmemo.com/?p=1250580