By: David Henry and Matthew Glodstein THE BEAR FLU: HOW IT SPREAD Name: Thoeun Sarkmark Na ID: 092SIS37

THE BEAR FLU: H OW IT SPREAD  What is Bear Flu of the Bear Stearns?  The processing of hedge fund  Innovation of Ralph R. Cioffi (Klio-CDOs)  The End of New CDOs

W HAT IS BEAR FLU OF THE BEAR S TEARNS ?  Financing scheme used by Bear Stearns’ hedge funds became a template for subprime disaster.  that is the Bear Stearns Company (BSC), which is behind $10 billion worth of Collateralized Debt Obligations (CDOs) at Citigroup and Bank of America. CDOs are packages of bonds and loans fund that can take long and short positions - use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk

W HAT IS BEAR FLU OF THE BEAR S TEARNS ? (C ON ’ T )  The funds’ top manager is Ralph R. Cioffi, who headed up the Bear hedge funds that used money raised from the Klios to buy CDOs and to lock in year-long financing for his hedge funds.

H OW IT SPREAD : T HE PROCESSING OF HEDGE FUND In late 2006-The subprime mortgage market began to unravel and global markets barely flinched June 2006-Two Bear Stearns (BSC) hedge funds collapsed and the event of global crisis still not yet alleviate December 2006BSC – which lent one Bear Fund hundreds of millions

H OW IT SPREAD : T HE PROCESSING OF HEDGE FUND (C ON ’ T ) In early 2007-Ralph R. Cioffi had moved 2$ million of his own 6$ million investment in the hedge funds into other fund. -Investor couldn’t redeem their shares until the end of June.

T HE INNOVATION OF C IOFFI  Why Cioffi innovation CDOs ? because Klio Funding is a brand of CDO that enabled Bear to sell to the $2 trillion money market fund industry.

T HE INNOVATION OF C IOFFI (C ON ’ T )  What is Klio Funding ? Klio Funding is an entity for sells Commercial Paper and other short- term loans and uses it to buy higher- yielding and long term securities.

T HE INNOVATION OF C IOFFI (C ON ’ T )  According to Business Week analysis of hedge fund of Cioffi was showed that: The Cioffi and his team develop a novel investment product to attract money – market fund that is a new class of investors to the mortgage market. Their innovation is particularly aggressive from of collateralized debt obligation -CDO That became the building block of the industry’s push to keep growing for longer than otherwise would have After market turn: Cioffi money machine contributed to much of 10$ b. plus in write-down that Citigroup and Bank of America revealed in November.

T HE INNOVATION OF C IOFFI (C ON ’ T )  Klio’s structure: Powerful to allowed the Bear Funds to lock in long term financing hedge funds borrow for short periods of time Under the Klio deals: for at least a year that use money without having worry about disappear of global got volatile From 2004 through 2007 – Wall Street raised some 100$ b. through these innovation CDOs

T HE INNOVATION OF C IOFFI (C ON ’ T )  But the complexity of the Klios and their ilk is: Since the Klio offered to refund policy, money market managers so they didn’t worry about the home buyer would pay back their loan. Encouraged lax lending practices by putting too much distance bt. The borrowers and the ultimate holders of their debt.

T HE END OF NEW CDO 2007Klios -CDO In April-Losses at the funds began mounting -Cioffi set up other CDOs -High Grade Structured credit CDO The issued short-term paper – offered investors a money-back guarantee from Bank of America

T HE END OF NEW CDO (C ON ’ T ) in the same month April - Conference of hedge funds investors and Cioffi said: ( New CDO created to get the fund back on track to generate positive return.) In May-Cioffi had raised nearly 4$ b. to making CDO biggest of the year -After one week, the deal for CDO closed and the Bear funds imploded and wiping out 1.6 $ b. of the investor’s money

T HE END OF NEW CDO (C ON ’ T )  So in totally:  In the autumn CDOs in practice was unsuccessful  Money-market was stopped buying the short-term debt  The credit market were frozen

T HE END OF NEW CDO (C ON ’ T )  All those factors: was reinforce Citigroup and Bank of America need to do good guarantees for Cioffi CDO’s investor, that is the triggering big losses of the two bank  Global market are dealing with the consequences:  Mortgage mess could run up to 500$ b.

T HE END OF NEW CDO (C ON ’ T )  Central bankers are struggling to stave off recession  And Bear Stearns doomed hedge funds because of financial folly

Thank you!