ACA Capital Holdings (ACA) is the latest sad tale enveloped by the worsening CDO and subprime fiasco. Having just gone public last November, the stock is now down nearly 65-percent from it high of early February. The stock dropped another 20-percent today when it revealed that it continues to struggle with its subprime exposure. The interesting tie-in is its relationship with Bear Stearns (BSC) which as of its IPO date last November had owned 27 percent of ACA stock through one of its private-equity funds. Among other financial engineering services, ACA provides financial guaranty insurance products to participants in the global credit derivatives markets and structured finance capital markets. In addition to this news, the lowest tranche of the ABX index was clobbered again. As a result, we saw more weakness today in shares of some of the hedge funds in drag, Goldman Sachs (GS) and Bear Stearns (BSC). The market as a whole was nearly able to act as if none of this mattered. The Dow Industrials closed again at an all-time high and just short of 14,000.
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