First sub-prime arrests at Bear Stearns

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From the AP this morning, via The New York Times: ‘Two former Bear Stearns managers have surrendered to face criminal charges in the wake of the collapse of the sub-prime mortgage market, the federal authorities said Thursday. One former manager, Matthew Tannin, was taken into custody outside his New Jersey home, while the other, Ralph R. Cioffi, was arrested at his New York City home, the FBI said.

The AP reports that federal authorities are expected to outline the charges against the two men later today.

Analysis: By my reckoning these are the first big arrests in the sub-prime mortgage collapse. For those of you who weren’t paying close attention late last spring, the collapse of two Bear Stearns hedge funds roughly a year ago hit Wall Street like a thunderbolt, revealing the dirty little secret of mortgage-backed securities: they were not secure.

Here’s how L.A. Land first reported the story on June 14, 2007, after Business Week broke it: ‘Business Week: ‘The situation is so bleak that Bear Stearns’ asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that’s got some hopping mad.’

We now know the collapse of the Bear Stearns hedge funds was a classic tipping point, providing evidence to for all to see that investments built on sub-prime mortgages were beyond risky, they were doomed. When it broke, though, the story did not initially receive wide play; it was seen as a problem unique to Bear Stearns and these hedge funds. Companies that would later be battered by the crisis were still seen as decent investments. In mid-June of 2007, Countrywide Financial stock was trading at $38.81; today it opened at $4.74. Washington Mutual Inc. shares were trading at $43.48; today they opened at $6.26.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.