Readers suggested a widening of the hedge fund problems for a weekend topic. "Is the Bear Stearns hedge fund situation the beginning of the great unravelling?" A reply, "But…..But……it’s all contained!!!!!!"

Another, "I’d like to see a topic on the 'unwinding.' I’d like people’s thoughts on what will happen and how it will happen."

One points to history, "I’d recommend reading Adam Smith’s The Wealth of Nations. He describes what happened to other nations, and I see very little difference today."

"The whole book is 1200 pages. It is definitely worth every page, but you can cherry pick certain parts that directly deal with our situation today. Coincidentally, he published it in 1776. Our founders used it is a basis, along with other works, for the constitution (1787). It is so enlightening to see how far we strayed, and where we’re headed."

One focused on a specific fund, "I wonder how the wonder boys who run the hedge fund at Yale U. are gonna weather this storm. Much has been written said about their astute business acumen, now we get to find out. Are there any public disclosures these guys have to do periodically? It would be interesting if somebody could kindas start tracking them."

Another, "The rich and wealthy would like to keep everyone out of their 'special' areas - you know, ones where one doesn’t trip over hobos or dead bodies on a daily basis, but in the end all prices will come down for the many reasons we’ve discussed before."

"I wonder when the real fallout from the crumbling hedge funds will begin… perhaps it has begun? We’ll see…"

One looks at securities, "Wondering about the back and forth we are seeing now between US and China. For years now US MBS have been selling into Chinese hands despite the questionable nature of the underlying loans. For years some, not all, but some of the Chinese exports flowing into the US have been, let’s be diplomatic, less than the highest quality. Now things seem to be worsening. tainted consumables vs deteriorating investments/securitized packages, CDOs, etc."

"Is this going to get worse or will both sides figure out that doing things the right way really is better for all involved?"

One looked at the most recent casualty, "Brookstreet Securities Corp. I’m curious about the 100 employees laid off. What kind of cars were they driving? What kind of toys did they have? I’m sure some had boats. Where were they living? Obviously they would have higher end salaries and I’m just curious what types of hedging they employed to protect their financial future."

The LA Times. "Anxiety intensified Friday about the toll the sub-prime mortgage meltdown is taking on the financial industry at large, as Bear Stearns Cos. pledged to lend $3.2 billion to rescue a hedge fund battered by rising defaults on home loans."

"'We know that these holdings are not unique to Bear Stearns,' said Drexel University professor Joseph R. Mason, co-author of a recent study warning of dangers in securities backed by home loans to high-risk borrowers. 'It would be hard to find a Wall Street firm that hasn't created similar funds.'"

"Stock investors weren't comforted. 'We are selling on fear and lack of information,' said David Brady, president of Brady Investment Counsel in Chicago. 'We've got a heavily leveraged hedge fund in trouble, and that's got the market spooked.'"

"All industry groups were hit, said Gary Schlossberg, economist with Wells Fargo Capital Markets in San Francisco. That's partly because the market simply doesn't know what other problems might be out there, he added."

"The big fear, Schlossberg said, is that hedge funds have borrowed too heavily in an effort to pump up their returns. But borrowing amplifies losses too and can fuel selling as asset values decline. 'There is a concern about a ripple effect,' he said."

"'It's similar to what happened in February, when the first round of sub-prime fears started to rock the market,' Brady said. 'People sell first and ask questions later. And the selling can really snowball.'"

"Mason, the Drexel University professor, expressed greater concern about the potential damage from sub-prime mortgages. Bear Stearns is relying 'on the implicit assumption that recovery is right around the corner, when in fact it looks like we're in for a summer of increased defaults,' Mason said."

"What's worse, he said, is that the biggest investors in mortgage-backed debt are not hedge funds. Instead, they are banks, asset managers, pension funds and insurance companies that serve mainstream Americans and have put their money at risk by buying exotic mortgage securities, he said."

"Kurt Eggert, a Chapman University professor who testified to Congress in April about the complexities of such securities, said it was unsettling that Bear Stearns, which has a reputation on Wall Street as 'the smartest guys in the room,' was unable to manage the bonds' risks. He, too, said the threat from the sub-prime market was wider than many realized."

From CNN Money. "Bear Sterns said Friday that it's bailing out one fund to the tune of $3.2 billion, and is still working on a rescue plan for the other. News of the bailout spooked investors."

"'This is not over yet,' said Jim Awad, Chairman of Awad Asset Management. 'We don't know who's involved, who's not. The whole recovery has been built of confidence, leverage and cheap money. This has the potential to be widespread in terms of seizing up capital.'"

The New York Times. "It is the biggest rescue of a hedge fund since 1998 when more than a dozen lenders provided $3.6 billion to save Long-Term Capital Management."

"The crisis this week from the near collapse of two hedge funds managed by Bear Stearns stems directly from the slumping housing market and the fallout from loose lending practices that showered money on people with weak, or subprime, credit, leaving many of them struggling to stay in their homes."

"Bear Stearns is negotiating with banks to rescue the second, larger fund started last August, which has more than $6 billion in loans and reportedly holds far riskier investments. Those negotiations were continuing yesterday, and it was unclear whether they would be successful."

"'We don’t think it is over,' said Girish V. Reddy, managing director of Prisma Capital Partners, which invests in other hedge funds. 'More funds will feel the pain, but not many are as leveraged as the Bear fund.'"

"As Bear Stearns worked to manage the crisis, many on Wall Street speculated about how the firm could let the funds get in such a precarious position. In fact, executives at Bear Stearns Asset Management had debated last summer whether to start the second hedge fund."

"The Bear Stearns funds, like so many others, had invested in collateralized debt obligations, or CDOs, which invest in bonds backed by hundreds of loans and other financial instruments. Wall Street sells CDOs in slices to investors."

"Last year, $316.4 billion in mortgage-related CDOs were issued, about 77 percent more than the year before, the Securities Industry and Financial Markets Association said."

"One investor, who asked not to be identified because he was trying to recover his investment, said that when he moved to get his money out, he was told investors had tried to redeem 10 percent of the fund. 'They didn’t realize this was Katrina,' the investor said. 'They thought it was just another storm.'"

"Bear Stearns is bailing one of the funds out because it is worried about the damage to its reputation if it stuck investors and lenders with big losses, said Dick Bove, an analyst with Punk Ziegel & Company."

"'If they walked away from it, investors would have lost all their money and lenders would have lost all of the money,' Mr. Bove said. But 'if they did that to everyone in the financial community, the financial community would have shut them down.'"