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July 17, 2007 Isn't it Ironic?
Will the collapse of the sub-prime market affect the Dow? I find it ironic that the day after the Dow breaks 14,000 is the day the Bear Stearns reports that "one of its funds was worth nothing and another worth less than a 10th of its value. According to the Wall Street Journal this morning, "the pain experienced by Bear...is being felt by investors around the world. History has shown that relatively illiquid securities, based on an uncertain value of their underlying holdings (e.g. declining home values) are subject to a rapid collapse (e.g. the S&L crisis). Fear plays an important role in value as the uncertainty can very much feed upon itself and create a lopsided market (too many bears - more irony). So might there be parallels to other markets that are highly dependent on relatively illiquid investments in private entities (e.g. private equity)?
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