What Really Happened at Bear Stearns?

The two bankrupt Bear Stearns hedge funds were doomed to fail once the market for subprime mortgages cracked, according to a Business Week analysis of confidential financial reports.

The funds depended on loans that could be called quickly, and they carried too little cash and too many oddball securities to have any staying power. One used an unusual arrangement with Barclays to boost its leverage, a side deal that may well have put the other fund in jeopardy.

Auditors red-flagged the fact that the reported values of more than 60% of net assets were just estimates by Bear managers. The funds were marketed as "high grade" but failed their market test.

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