I’ve post dated this a bit, because this is Very important, so it will be on the top of the list until about 5pm today.

The hedge funds are typically Highly leveraged, which means that this could start a house of cards type collapse.

Merrill takes over $800 million Bear hedge fund assets

A plan to restructure Bear Stearns’ funds heavily invested in securities backed by subprime mortgages gets thrown into doubt.
June 20 2007: 7:31 PM EDT

LONDON (CNNMoney.com) — Merrill Lynch has seized about $800 million of assets from troubled hedge funds managed by Bear Stearns, throwing in doubt the chances that the funds will survive.

By late Wednesday, Merrill Lynch had sold enough of the assets, which were used as collateral for loans made to the two funds, to cover its exposure to the ailing funds, the news agency Reuters reported.

The assets were were mainly bonds backed by other securities. More asset sales are expected Thursday.

Merrill Lynch (Charts, Fortune 500) declined to comment. Bear Stearns (Charts, Fortune 500) was not immediately available for comment.

The two funds suffered double-digit losses through April after making bad bets on securities backed by subprime loans, according to Reuters. The subprime market, which gives home loans to borrowers with weak credit, has been roiled by rising defaults.

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I’m wondering if this might not take down Bear Stearns the same way that Barings Bank was taken down.