Bear Stearns promises $3.2 billion to rescue fund

New York: Investment bank, Bear Stearns Companies, has pledged up to $3.2 billion in loans in order to bail out one of its hedge funds that was facing collapse because of bad bets on sub prime mortgages.

The move by Bear Stearns makes it the biggest rescue of a hedge fund since 1998 when Alan Greenspan organised a move to bail out Long-Term Capital Management.

The near collapse of two hedge funds, managed by Bear Stearns, stems directly from the slumping housing market and the fallout from loose lending practices that allowed people with weak, or subprime, credit, to avail of loans. Many of these borrowers are now struggling to stay in their homes.

Though Bear Stearns would appear to have averted a meltdown, there are nagging concerns that if delinquencies and defaults on sub prime loans surge, Wall Street firms, hedge funds and pension funds could be left holding billions of dollars in bonds and securities backed by loans that are quickly losing their value.

Souring sub prime loans and rising oil prices sent the stock market plummeting with the Dow Jones Industrial Average falling sharply after the announcement of the bailout and closing down 185.58 points.