Happy Anniversary, Wall Street

One-year ago the great seeds of the great de-leveraging were planted:

June 14, 2007
A hedge fund managed by Bear Stearns Cos. is scrambling to sell large amounts of mortgage securities, a setback for a Wall Street firm known for its savvy debt-market trading.

The fund makes bets on bonds backed by mortgages, many of which are subprime, meaning they go to especially risky borrowers. Faced with losses on its investments, the fund, called High-Grade Structured Credit Strategies Enhanced Leverage Fund, together with a sister fund, is trying to sell about $4 billion in mortgage-backed bonds to raise cash, according to people close to the fund and traders who have been solicited. WSJ

A few days later Merrill Lynch decided to seize collateral from the fund and attempt to liquidate it, toppling the first dominos:

An auction Wednesday could come as a blow to the fund, known as the High-Grade Structured Credit Strategies Enhanced Leverage Fund, because it could spur additional sales of collateral assets from other worried dealers. A string of asset seizures would likely force the dissolution of the fund, and could effectively drag down the prices of similar securities in the market, creating losses at other Wall Street firms. WSJ

Wall Street spent the better part of the next month shrugging off the unfolding drama, but the nasty selloff in August was a hint of what was to come. The Street was slow to pick up on several themes, such as Angelo Mozilo and Countrywide, the skullduggery at Bear Stearns, and issues at Moody's.

There were some great trades there, if you were not asleep at the wheel.

Bear's Fund Is Facing Mortgage Losses
Wall Street Journal

Bids Wanted at the Bear
1440 Wall Street

Merrill to Bear: Drop Dead
1440 Wall Street

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