A hedge fund that has profited mightily from the downturn in the nonprime mortgage market said the implosion is just beginning and that the number of loan defaults will “skyrocket,” according to a letter to the firm’s investors.
The letter was written by Paulson & Co., an $11 billion hedge fund, which was reported to have earned 67% last month in one of its funds by betting on a downturn.
Bankruptcy is an inevitability for most monoline originators, according to Paulson, and the asset-backed securitization market is likely to “disappear,” the firm said in its letter.