Did Bear Stearns draw the short straw? That’s what a group does to pick the unlucky guy that needs to sacrifice himself for the good of the team. I keep looking at this BSC hedge funds / CDO / subprime fiasco and feel like they either were the only ones to make a mistake or they drew a short one.

What’s curious to me is the odd way this got exposed. I seriously doubt that Merrill didn’t contemplate the consequences of their actions before telling the market of their plans to pressure BSC and more importantly, the entire CDO market. Wednesday’s afternoon drop gave a very quick measure of letting this Pandora all the way out of the box. It should surprise no one that Merrill backed off. It was much better for the team when “CDO” were just three letters that other investors heard and tried to use in a sentence at cocktail parties.

When no one ever really liquidates an asset and all we see is a product category that has expanded past $1 trillion, it’s easy to just assume lofty pricing that will only head higher. Now that we had this little episode, the players in this crowd and anyone who is giving this some thought will know the risk of trying to sell it. And that is a scary point - if a small group is getting nervous about products that they can only sell to each other, what do you do? Somehow a CDO ETF doesn’t sound so good. So it looks like the guys that created these products will have to find a way to deal with them on their own.

If the CDO market is entirely stable other than this one problem at BSC and with subprime mortgage risk, everything is okay. If not, I’d hate to have to draw straws and be the next member of the team to take a hit.