Flash! The Wall Street subprime mortgage high-wire act continues.

Flash! At the midnight hour last week Bear Stearns, a major Wall Street house, has offered up more than $3 billion to save one of its hedge funds.

The money is to go to a financial child of Bear Stearns called High-Grade Structured Credit Strategies Fund. High-Grade is in hock to Deutsche Bank AG, Merrill Lynch & Co. and Lehman Brothers Holdings, among others, for staggering amounts of money. High-Grade borrowed the money to buy billions in bonds backed by the subprime home mortgages. The delinquency and default rates on these mortgages are rising so fast it’s beginning to look like something staged by NASA.

Subprime mortgages are home purchaser loans given to people with bad credit histories, insufficient incomes, overextended credit, weird work histories, overwhelming family problems and you-name-what-else in the way of warnings that these mortgage recipients are bad risks. Why any prudent investor would buy such mortgages or bonds comprised of them would be a puzzle–except that the slogan on Wall Street seems to be “Make money today and let tomorrow take care of itself.”

Tomorrow has arrived and it is beginning to take care of the greedy mortgage bankers, bond houses, financiers, hedge fund geniuses and Wall Street worthies who made hay the past few years while the sun briefly shone. These mortgages with their teaser interest rates and other deceptive gimmicks were bundled together into bonds, which institutions and financial organizations bought in the belief that they were safe.

Some of the bonds were bought by hedge funds like High-Grade with borrowed money. Now the trail gets murky. The bonds probably were used as collateral for the loans so that as more subprime homeowners have defaulted on their payments the bonds’ value has plummeted.

In cases of this sort the lenders (Deutsche Bank AG, Merrill Lynch & Co., Lehman Brothers Holdings, et al) see the collateral for the loans they made shrinking and demand, as per the terms of many loan agreements, that the borrowers, in this case High-Grade, put up more money.

But High-Grade is in no position to do that. Its investors have been pulling out of the hedge fund so High-Grade looks like it owes more than it has. Enter Papa Bear Stearns with a last-minute loan of money to its offspring, High-Grade, thus staving off a nasty hedge fund collapse and a panic among other hedge fund investors.

But the story does not end there. Bear Stearns has another hedge fund child with the similar name of High-Grade Structured Credit Strategies Enhanced Leverage Fund and it is bigger and seemingly in deeper doo-doo.

Wall Street has created, since 2000, about $1.8 trillion in subprime mortgage bonds, loans and other esoteric obligations. It looks as though they are held in endlessly complicated chains of loans, borrowings, repurchase agreements, financial hedges, funny-money bookkeeping gimmicks and God knows what else. The whos, hows and wheres of this rickety financial skyscraper are only dimly understood and barely known. Even the insiders may have a faulty overview of what conditions are actually like.

What is known is that the sums involved as so gigantic that if this structure topples, the panic, the demands of frantic investors to get out, the margin calls could run through American and even world finance faster than gasoline can catch fire.

At the same time that some investors are running to get out, the bottom-feeders are readying themselves to snap up these depreciated subprime-backed bonds and make money where others could not. Anything could happen at this juncture–or nothing. If a few more funds signal distress there may be hell to pay but Wall Street, frightened by what may happen, may decide to pony up billions to stop the avalanche. That’s assuming they have enough money and the will to save the situation.

Nor is this simply a drama of titans up in the sky and, entertainment aside, of no concern to the rest of us. If the structure sways and falls, there could be an enormous amount of financial collateral damage.

Right now this story is on the business page and as long as it stays there, things are at least medium cool. If, however, you turn on the TV and the first story begins with something about subprime mortgages, head for cyclone cellar.