What happened at Bear Stearns

June 2007
Collapse of the twin Funds
The first fund, the Bear Stearns High-Grade Structured Credit Fund — the one bailed out yesterday — was started in 2004 and had done well, posting 41 months of positive returns of about 1 percent to 1.5 percent a month. But investors were clamoring for even higher yields, which would require more aggressive bets on riskier mortgage-related securities and significantly higher levels of borrowed money, or leverage, to bolster returns.

The firm clearly had the expertise — it was a leader in underwriting and trading bonds and esoteric securities backed by mortgages. In addition, Ralph R. Cioffi, who ran the funds, had played a major role in building the Bear Stearns mortgage business.

So, in August, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund — the second fund that eventually had huge losses — was started with $600 million in investments, mostly from wealthy individual clients of Bear Stearns, and at least $6 billion in money borrowed from banks and brokerage firms. Bear Stearns and a handful of its top executives invested a mere $40 million in both funds.

The timing could not have been worse.

Internal Cleanup
Bear Stearns moved quickly yesterday to replace a senior executive whose unit ran two hedge funds that nearly collapsed this month because of aggressive bets on mortgage securities.

The executive, Richard A. Marin, was succeeded as chairman and chief executive of Bear Stearns Asset Management by Jeffrey B. Lane, a vice chairman at Lehman Brothers and a Wall Street veteran known for his administrative skills.

Bear Stearns said Mr. Marin would remain as a special adviser to Mr. Lane. Through a spokesman, Mr. Marin declined to comment.

In addition to Mr. Marin, questions have arisen about Ralph R. Cioffi, the manager of the two hedge funds that had borrowed more than $10 billion to invest in complex securities that trade infrequently and are hard to value.

In a telephone interview yesterday, Mr. Lane said that Mr. Cioffi was still with the firm and working with Thomas Marano, the head of the firm’s mortgage business and a respected trader, to help unwind the two funds in an orderly manner.


Mar 2008
JPM and Fed come in to rescue BSC and provide money.

Solving Non Linear Equations in Finance

Here are some good videos that helps you understand two important methods.

Newton Raphson(NR) Method

BiSection Method