There is something like 500 trillion in instruments like this. What happens if even 5% of that goes south?

Buyers avoid Bear Stearns’ cut-priced sale
By James Mackintosh and Gillian Tett in London

Published: July 4 2007 03:00 | Last updated: July 4 2007 03:00

Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds.

Vulture funds and others have been quick to bid for holdings in the two funds, but the best bid for Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund, the more geared of the two, is just 5 cents on the dollar.

Private sales of stakes are the only way investors can exit the two Bear funds, after the bank suspended redemptions in May amid a wave of withdrawals.

“There are buyers but they can’t agree on price,” said Jared Herman, co-founder of Bahamas-based Hedgebay.

The less-geared Bear Stearns High-Grade Structured Credit Strategies Fund, which the bank has rescued with a $1.6bn loan, is being offered at about 70 cents on the dollar. The fund is only attracting bidders at about 30 cents, according to people who use the system.
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The Enhanced Leverage Fund’s net assets of $638m were more than 10 times geared in March, meaning a drop of just 10 per cent in the value of its holdings would wipe out investors.
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