Carl Icahn Criticizes the Fed. Feels Bad For Investors Buying Junk Bonds

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The billionaire and activist investor Carl Icahn warned that close to zero interest rates threaten the economy and financial markets. He criticized the US Federal Reserve, warning that the extremely low interest rates may have unpredictable effects on the economy and financial markets, Reuters reported.

“They don’t understand the treacherous path they are going down” said Icahn in an interview with the news agency and expressed his support for the candidacy of Donald Trump for president of the United States. The billionaire has always been an outspoken critic of the Fed because they keep interest rate near zero since 2008, which according to him was too long.

Loose US monetary policy helped to get out of the crisis, but cheap credit for too long led to the accumulation of corporate debt and demand for yield on the part of ordinary investors to buy riskier assets like junk bonds, for example, only to obtain better returns.

The Veteran and Wall Street Expert made his fortune by buying assets in companies such as RJR Nabisco, Texaco, Phillips Petroleum, Lions Gate Entertainment Corp, Netflix Inc, Apple and eBay Inc and exert pressure on the management to change its strategy.

The billionaire said that he felt obliged to warn about the state of the financial markets. According to Carl Icahn if more investors are aware of the dangers of the secondary mortgage market in 2007, the United States could have avoided the crisis that plunged its economy.

In a video entitled “Dangers Ahead” and published on Tuesday, Icahn said that the Fed policy has allowed the directors of companies in the United States to implement “financial engineering” that led to an increase in the already wide gap between rich and poor. He criticized the financial players who take advantage of the loophole and their incomes are taxed as capital gains rather than as ordinary wages. Donald Trump, whom Icahn supports for the presidential candidate of the Republican Party, presented on Monday a plan to eliminate this loophole.

Carl Icahn said he was particularly concerned about ordinary investors who buy junk bonds from heavily indebted companies. These bonds have higher yields but also pose a higher risk of bankruptcy, says Reuters.

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