Update: A Hedge Fund, Subprime Loans, and What We Learned From Rocky Delgadillo

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We don’t want to leave you hanging on the outcome of that Bear Stearns hedge fund fiasco involving subprime loans, but we also don’t want to give the misleading impression that we know exactly what’s going on there. To quote our favorite Harvard-educated politician, Rocky Delgadillo, this is ‘due to the confusing nature of the facts in this situation.’

Here’s what we know: A Bear Stearns hedge fund backed by other Wall Street banks made bad bets on bonds backed by subprime mortgages. Now the banks, led by Merrill Lynch, want their money back, but they don’t want to cause a ripple effect that will hurt all investors in subprime mortgages, which would be a pretty big disaster.

Three takes this morning:

From the L.A.Times this morning: ‘Merrill Lynch & Co. is proceeding with a plan to sell about $800 million of bonds from a money-losing hedge fund run by Bear Stearns Cos., a day after delaying a similar auction....’

From the N.Y. Times this morning: ‘An effort to save a troubled hedge fund at Bear Stearns hit a major hurdle yesterday when Merrill Lynch signaled that it would move forward with plans to auction $850 million in subprime securities that had been held as collateral.’

Here’s from CNBC.com this morning: ‘JPMorgan Chase and Deutsche Bank have already seized and are beginning to sell off assets from troubled Bear Stearns’ hedge funds, according to CNBC’s Charles Gasparino. ‘Apparently, the fire yard-sale is beginning,’ Gasparino said on CNBC today.’

So is it a ‘fire sale’ or an orderly unwinding? Will there be a ripple effect on other mortgage investors or will it be contained? Are we talking about one hedge fund or two? We’ll try to sort it out.