Agency problem

Investors in Bear Stearns levered and more levered sub-prime hedge funds learned today they face losses of 91% and 100% respectively. With two weeks having passed since the initial margin calls and the ABX indices having only traded steadily lower, this is hardly surprising. In hindsight it should not have been surprising that running futures type leverage on a portfolio of entirely sub-prime junk (even if tranched and prioritized) 18 months into the unraveling of the greatest real estate bubble in history would lead to total losses. Bear itself was not swayed by the opportunity. The firm wagered mere token money in staking the funds at the outset. Yet investment managers gave Bear's funds $1.5bn of other people's money to take exactly that bet. Forget the Bear Letter to Investors, now public. M* wants to see the investor roster. Who pays these guys?