A highly leveraged Bear Stearns hedge fund that made bad bets on the subprime mortgage market was on the brink of failure on Tuesday after Merrill Lynch rejected a proposed rescue plan and prepared to auction off $850m of assets that the fund had pledged as collateral.
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In addition to large losses for investors and lenders to the Bear Stearns fund, some analysts feared that a failure of the fund could accelerate losses in the subprime mortgage-backed securities market and perhaps trigger a loss of confidence in the wider market for complex structured finance securities.
