Russell 2000 falling fast
The major U.S. indices have extended their losses as investors sort through the subprime meltdown. At 12:50 p.m. The Russell 2000 (NYSE: IWM) is leading the way down, having lost 9.81 points, or 1.15%, to 840.08. Dow Jones Industrial Average (INDU) is down 95.43 points, or 0.68%, to 13,876.12.
Stocks started falling as trading began on news that one hedge fund managed by Bear, Stearns & Co. (NYSE: BSC) has become worthless while the other has lost more than 90% of its value. The funds had made bets on sub-prime mortgage bonds and started feeling the heat as housing prices began to decline in the second half of 2006 and delinquencies and foreclosures increased.
Subprime home mortgages are made to borrowers with low credits scores that would normally disqualify them from receiving financing.
Some investors are obligated to dump their bonds following a downgrade.
Concern over lax lending led the U.S. Federal Reserve to join hands with other regulators to launch a program that reviews the practices of some subprime lenders. The initiative, announced on Tuesday, July 17, should bring some oversight to field marked by patchy regulation.
The Fed’s Chairman Ben Bernanke is currently answering questions from lawmakers at from the House Financial Services Committee.
