Banks 'set To Call In A Swathe Of Loans'

Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200m of the $850m mix. "The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said. "God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc. "We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn." US property writer Paul Muolo described the Bearn Stearns crisis as the “subprime Chernobyl”, saying the bank had created a “cone of silence”. Abandoned by fellow banks, Bear Stearns has now put up $3.2bn of its own money to rescue one of the funds, a quarter of its capital. This is the biggest bail-out since the Long-Term Capital Management crisis in 1998, which Bear Stearns refused to join at the time. Bear Stearns is now alone, a case of rough justice being served. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/26/cnusecon126.xml&CMP=ILC-mostviewedbox

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