United Capital Markets has halted redemptions from four of its subprime mortgage funds. They say the halts are temporary and they do not plan to liquidate. Uh huh. I’m sure they don’t “plan” to liquidate, but like the old DC dictum says, if they deny it, the story must be bigger than you think.
Then there’s Brookstreet Securities, who are shutting down after the mortgage-backed portfolios they managed for clients blew up. The SEC is reviewing their financial records. Some of those who let Brookstreet trade for them are now less than zero. They’ve lost everything AND have margin calls, which means they now owe substantial amounts of money.
That the investor always needs to be careful is a given, but doubtless many Brookstreet investors had no idea how risky the ‘investments; were. At least some of them put all their money into Brookstreet, something that should never be done, and which shows them to be unsophisticated investors who sadly just got reamed.
It sounds like a classic scam: offer a rate too good to be true, pay exorbitant “dividends” out of principle, and expand holdings using borrowed money. Unfortunately, unscrupulous people have been bilking people this way since long before there was a stock market.