The NYT reports that the first-ever quarterly loss at Bear Stearns foretokens more agony on Wall Street.  The article doesn’t explain why.

Blawgletter has heard that the subprime fallout won’t end until investors learn where the risk of subprime borrower defaults ended up.  Apparently the subprime industry did such a terrific job of shifting risk that we can’t tell who now bears it.

Does the uncertainty matter?  And, if it does, why?

We suspect that where the risk went matters a lot to owners of entities (or funds or securities) that concentrated on financial instruments whose collateral consists largely if not entirely of unwise mortgages.

The Bear Stearns announcement suggests that even the bullet-proof aren’t.  And that, until we get a true accounting of the dumb decisions Wall Street made, for itself and its gullible investors, we should expect more shocks, less investment, and additional lawsuits.

Bottom line:  nobody wants to buy a share in a company, a mutual fund, or any of the abundant exotic mortgage-backed securities nowadays without a fine understanding of the true risk.  Which means, we think, that few if any shares will be bought.

Barry Barnett

Feedicon Bear or Stearns? — you decide.