Washington Times- Bear Stearns & Cos. yesterday said it would close two troubled subprime mortgage hedge funds that are worthless as a result of surging defaults as Federal Reserve Chairman Ben S. Bernanke admitted that the subprime mess will further sink the housing market and depress economic growth this year.
The news sent stocks tumbling, with the Dow Jones Industrial Average falling as much as 140 points before recovering some in trading yesterday. Bear Stearns” move raises questions about the value of as much as $1.5 trillion of mortgage-backed securities issued at the height of the housing boom when lax lending standards and ebullient market conditions enabled shaky borrowers to easily obtain loans on overpriced homes.
Mr. Bernanke admitted for the first time that the fallout from the collapsed housing market and mounting credit crunch could spread to consumers and the overall economy as defaulting loans lead to foreclosures and plummeting home values in many neighborhoods, although he was optimistic that the economy would avoid the worst reverberations.
“Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities  problems that likely will get worse before they get better,” he said in testimony before the House Financial Services Committee.
