The collapse of the financial markets

[Thierry.]

Bear Stearns gets emergency funds

 

US bank Bear Stearns has got emergency funding, in a move that raises fears that even the top Wall Street names are suffering amidst the credit crunch.

The Federal Reserve of New York and rival bank JP Morgan Chase will provide the money to Bear Stearns for 28 days.

JP Morgan is also trying to get long-term financing for Bear Stearns.

Bear Stearns has been at the centre of the US mortgage debt crisis, and there has been speculation that it was struggling to fund its daily business.

Bear Stearns shares dropped as much as 53% to $28 on the news.

'Other banks'

The credit crunch was caused because banks became less willing to lend to each other after they suffered large losses on investments linked to the US housing market.

This created problems for a number of companies which relied on borrowing money to fund their business.

In the UK, Northern Rock ran into trouble when its line of relatively cheap credit dried up.

Analysts said that Bear Stearns may not be only bank suffering in the US.

"The situation is very much that Bear Stearns was very close to the edge and it was much worse than we all thought," said Michael Klawitter of Dresdner Kleinwort.

"It raises severe concerns over other banks."

Alan Schwartz, president and chief executive officer of Bear Stearns, said: "Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity.

"We have tried to confront and dispel these rumours and parse fact from fiction.

"Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated," he added.

"We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to

Private equity giant Carlyle Group has pledged to "stand by" investors in the firm's failed billion dollar hedge fund, the Financial Times has reported.

The firm's co-founder David Rubenstein told the newspaper that he was working on ways to address clients' losses.

His comments came after Carlyle Capital Corporation (CCC), a unit of Carlyle Group, said it was unable to pay back its debts and may be liquidated.

Some $600m (£295m) of clients' money will be lost if the fund fails.

[Thierry.]

Boss rues collapse of Hedge fund

Global problems

The fund is the latest casualty of the widening credit market crisis.

CCC's problems emerged last week when it became apparent that the fund was not going to be able to service its debts.

Some of the banks that had lent CCC money started liquidating assets, and the fund's shares, which are listed in Amsterdam, were suspended.

 

I don't think one fund out of 60 will spoil a reputation built up over 20 years

 

David Rubenstein

Carlyle Group

On Wednesday, CCC said that it had not been able to refinance its business and it had so far defaulted on about $16.6bn (£8.1bn) of its debt.

CCC said that it would collapse if, as expected, its lenders seized the remaining assets.

Other investment funds may now face similar problems, analysts fear.

Mortgage worries

In the past year, CCC and other global banks and hedge funds have been buying mortgage-backed securities.

These were assets which offered strong returns and were seen as relatively safe investments because the US housing market had been enjoying relatively robust and uninterrupted growth.

However, their value has plummeted in recent months after higher interest rates led to a drop in the housing market and a surge in mortgage defaults, especially in the sub-prime sector which focused on clients with low incomes or poor credit.

With the sharp slowdown in the US housing market, doubts have emerged about the viability of mortgage assets even if they are not linked to sub-prime borrowers with poor credit.

And it is this which has hit Carlyle - which held Triple A mortgage securities backed by government-sponsored mortgage lenders..

Helping hand

Despite the problems, Carlyle's boss was upbeat about his company's future. "I don't think one fund out of 60 will spoil a reputation built up over 20 years," Mr Rubenstein told the Financial Times.

"We have stood behind out products in the past and we are working on ways to address the losses that are being suffered by investors," he said.

[Thierry.]

I see the Era of Enron and the Asian financial crises in the horizon. The default of the banking system will have a serious effect on the world economy as it is the most Globalized industry in the world.