NEW YORK (FMLiveWire) - The Wall Street money-machine is now "complete valueless crap and junk" says Ben Bernanke, the head of the US Federal Reserve in an exclusive interview with FMLiveWire.
Bernanke made the candid observation as the market for "collateralized debt obligations" (CDOs) ground to a halt throwing thousands out of work and drying up all credit as well as all consumer and corporate financing throughout America.
Now no one will now buy CDOs, which aggregate bonds, loans and derivatives into new high-risk junk debt. The market has collapsed said JP Morgan Chase & Co in a July 13 report, after the collapse of two CDO-based hedge funds to zero value run by Bear Stearns Cos.
Standard & Poor's has downgraded bonds from virtually all of the 75,000 CDOs as sub-prime mortgages default at unprecedented rates, throwing another 10,000 hedge funds into the dumpster.
"We've fallen through very thin ice," said Alexander Baskovichnik, a hedge fund manager who helped oversee $25 trillion of high-yield, high-risk junk debt for Picknittynutcase Asset Management in Geneva. "People are trying to find value but all these assets are valueless garbage now. Pretty much everyone is in the dark."
Firms have completely ended all sales as remaining CDOs achieve zero bids and zero worth. Banks have thus ended all consumer and corporate credit lines.
High-yield, or junk, securities are rated below Baa3 by Moody's Investors Service and BBB- at S&P, yet now everyone realizes that even AAA rated securities are just worthless leveraged trash.
Even "Collateralized Loan Obligations" are affected, CLOs being a type of CDO that's backed by corporate loans.
"CLOs are rubbish too now," added Bernanke. "There is so much uncertainty regarding spreads."
The slowdown comes as private equity firms such as Kravis' Kohlberg Kravis Roberts & Co. and Blackstone Group LP, both based in New York, need to borrow at least $30,000 billion to finance acquisitions.
CLOs rely on CDOs for 60% of the loans to finance US acquisitions, according to JP Morgan.
"CLOs have been instrumental in funding the surge in LBOs and pushing down spreads," said Gunnar Stranglebrainman, of the Frankfurt-based Dresdner Kleinkuntwartman, a unit of Allianzchimpanzee SE, Europe's biggest insurer.
CDOs also financed lending to homeowning morons with zero credit and high debt, known as subprime mortgages. About $50,000 billion of home loan debt went into CDOs in 2006.
The biggest managers of US CDOs are New York-based Bear Stearns and Merrill Lynch & Co, and Zurich-based Credit Suisse Group which are now filing for bankruptcy protection.
Citigroup of New York is the biggest underwriter of CLOs, and the second-largest bank underwriter of CDOs, and it too is headed for the chopping block. Bank of America Securities LLC, Wachovia Corp. and Goldman Sachs Group Inc. in New York are also big doomed CDO underwriters, said the Fed chief.
CDOs were created in 1987 by crooked bankers like Michael Milliken at Drexel Burnham Lambert Inc. Sales of the securities surged to $50,300 billion last year from $8 billion 15 years ago, according to Morgan Stanley.
CDOs pool trash assets ranging from phony investment-grade asset-backed debt to high-yield loans, and repackage them into high-risk bonds where the risk of default is always hidden. Only "greater fools" buy them.
"All CDOs, CLOs and hedge funds are being wiped out by unprecedented declines in the value of top rated securities," admitted Bernanke. The losses have triggered a selloff across credit markets as the fire sale of CDOs wipe out more and more bond holders.
"We experts sure got it totally wrong," he said. "As a result, Wall Street and American corporations and the US dollar are heading straight down the tube," Bernanke sobbed.
"Once the remaining idiotic investors realize this, the stock markets will collapse and gold and silver will skyrocket in price."
--Copyright Felix Minderbinder Live Wire
