Hedge Fund Collapse

Two hedge funds are on the virge of collapse at Bear Stearns. It would take too long to explain all the ins and outs of this problem, but here is what you need to know. The banking industry (and government) in no way wants these funds to collapse because it will force the rest of the indsutry to revalue CDO's closer to their actual price (which is much lower than anyone is admitting). This will have a ripple effect across the industry up to and including more fund failures. Everyone is desperate to avoid this which is why Merrill Lynch, who threatened to grab what collateral they could from the two failed funds and sell them, ended up not doing so (presumably under heavy industry and government pressure). Where will it end up? It buys everyone a little time to salvage things. Whether or not they will be successful is anyone's guess. Once again an irresponsible hedge fund is bailed out by the government and industry!