From Forbes : BNP Paribas Freezes Funds
One of Europe's largest banks, France's BNP Paribas, said on Thursday it had frozen three of its investment funds, citing volatility in the U.S. asset-backed securities market. The funds' exposure to risky subprime loans means the bank can no longer calculate their net value.Hmm.. So any fund that has invested in these three funds will now no longer be able to accurately calculate their net value. So should they also be frozen ? That would trigger a cascading effect, which likely will result in no mutual fund any where in world being able to calculate their net value.
BNP Paribas blamed "the complete evaporation of liquidity" in certain areas of the U.S. securities market for its inability to calculate the fair value of the three funds in question
Here is the normal way in which this would have been handled. These funds would probably treat their entire sub prime mortgage investments as wiped out and calculate their net asset value accordingly. Investors would be allowed to redeem at this calculated net value. New investment in the funds would be stopped to allow existing investors to gain if there is any value left in the sub prime mortgage investment.
The fact that this wasn't done leaves room for speculation that losses from the sub prime part of the funds could have been unbounded i.e the entire net value of the funds could have been wiped off. A scary thought for markets already under some strain.
Disclosure : I have no short position in any markets.