Boston-based hedge fund manager Sowood Capital Management LP said yesterday that it lost $1.5 billion in July after declines in the corporate debt markets. Banks and insurers ranging from UBS AG in Zurich to CNA Financial Corp. in Chicago have reported losses related to subprime mortgage debt. UBS, the world’s biggest money manager, replaced Peter Wuffli as chief executive officer in July after three quarters of declining earnings and losses at one of its hedge funds that invested in securities linked to subprime loans.

Kudos to one of our analysts here at Mortgage Blues for realizing U.S. treasury secretary Henry Paulson was off the mark with his optimism. As the day went on other sources came on line and said the same thing.

Reminding us of the stock market crash of 1929, Bear Stearns Cos., the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages. The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its $900 million of assets in securities linked to subprime loans, spokesman Russell Sherman said in an interview yesterday.