Where have all the vulture subprime buyers gone?

NEW YORK (Reuters) - Wall Street's so-called "vulture" debt investors aren't exactly racing to buy billions of dollars of complex U.S. mortgage-related bonds that have sunk in value amid the troubles in global financial markets.

That's a bad omen for banks and other holders of dicey mortgage investments since it shows even the market's riskier players see no bottom to the downward spiral of mortgage defaults, bond rating downgrades, bank losses and stingier lending that is sapping the strength of the U.S. economy.

While mainstream investors might be expected to take flight whenever prices stop making sense and newspaper headlines scream of losses, distressed or "vulture" investors tend to eventually pick over assets more carefully, helping balance markets by providing a floor for thinly-traded bonds.

But despite plummeting prices and a regular drumbeat of fire sales by mortgage vehicles called collateralized debt obligations, or CDOs, many vultures aren't touching subprime mortgage securities with a ten-foot pole.

"The CDO space is in a state of distress beyond repair," says Stuart Goldberg, a managing director at $10.7 billion hedge fund Marathon Asset Management in New York.

"It's a melting ice cube," Goldberg says. "The CDO of (asset-backed securities) is a very different animal than the typical generic distressed marketplace. There are literally deals and many assets within the ABS CDO space that have no value."