Robert Rodriquez, chief executive officer of First Pacific Advisors, was even more blunt. "We haven't seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit," said the two-time recipient of Morningstar's Fund Manager of the Year.
"I don't buy these prices, but as long as someone can provide capital to keep the finger in the dike, the charade will go on."
Rodriguez concurs with Gundlach that rising subprime mortgage delinquencies are a problem not just for hedge funds but also for major banks and other financial institutions.
"It is estimated that U.S. banks have invested 10% of their assets in collateralized debt obligations," he said. "And 40% of the CDOs are in subprime mortgages. I'm trying to get details on the components and I can't get any. This is setting up the next catastrophe."
The pricing is a fraud; the ratings are bullshit
What he said:
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