Pimco's Gross lobbies for bigger housing bailout

Fear and loathing were the usual suspects in today's 340-plus point decline on Wall Street, as Tom Petruno points out, and Pimco bond guru Bill Gross (pictured) probably didn't help much either. In his widely read "investment outlook letter," and in an interview on CNBC, he made the case for a bigger government bailout of financial firms and the housing market. In doing so, he was saying, as CNBC summarized it, "that his firm would be staying out of any and all bank offerings for the foreseeable future."

In other words, he was telling the markets that private money won't save the banks, and the borrowers, and it's time for the Treasury -- using your money -- to start bailing out Freddie, Fannie and perhaps others:

... if we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury -– not only to Freddie and Fannie but to Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. A 21st century housing-related version of the RTC such as advocated by Larry Summers amongst others could be another example of the government wallet or balance sheet that is required during rare periods when the private sector is unable or unwilling to step forward.

Analysis/bloviation: It's worth noting that influential economist Joseph Stiglitz made an even stronger argument for government intervention this week in The New Republic, arguing that the free markets' current failure to manage risk and allocate capital is not "rare" -- as Gross maintains -- but part of a pattern of market failure. Worth noting from the Stiglitz essay is his two-sentence recap of the housing mess:

Behind the subprime crisis were mortgages designed to encourage repeated refinancing of homes -- a pyramid scheme that generated billions of dollars in fees for the mortgage company as long as home prices continued to soar. It was inevitable that the bubble would break.

It's worth repeating: The mortgage industry designed products that would "encourage repeated refinancing of homes."

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Photo Credit: Bloomberg News

Comments

[Cal]

Ever hear of the term "Talking your book?"

Don't worry if you haven't, Gross has.

He is buying up lots of mortgage debt and wants to government to come in and bail out the markets so he can sell the debt at a profit (the yields would drop, increasing the amount he can get).

[Mark]

Whats so bad about repeated refinancing if the it was to the benefit of the homeowner, and it wasnt an exotic type of loan?

A friend of mine refinanced his home a few times, always getting a better 30 year interest rate.

[Tim]

I'd gladly pay taxes to bail out for-profit financial institutions, and other large corporations for that matter, on one easy condition:

Anyone in these firms who made more than $1 million dollars in a year since 2000 forfeits the difference to the US government to help bail out these institutions. That's every fund manager, every CEO, every staff person. They each get up to $8 million dollars to keep but the rest they write a check to the government to help out. That includes bonuses.

I didn't make that sort of money 2000-2008. I didn't cause this problem. Yet I'm punished with a poor economy due to their cheating, greed, and/or stupidity. If I cheat, or act greedy or stupid, I pay the price. They should pay, too.

Taxpayers should not have to pay unless the people who caused this problem also pay. And up to $8 million is more than generous: at a 5% return that'll give them each as much as $33,000 per month in gross interest for doing nothing but breathing. They should be able to live on that amount. I sure could. So could the 99% of Americans who are not wealthy.

[Bbap]

I totally agree w/ Cal, Gross is in this to make a huge profit. He knew that he was buying VERY risky debt, since he bought post housing bubble, and now he wants a bailout w/ taxpayer money.... I say let PIMCO sleep in the bed they made. What a scam artist!

[Bryan Morris]

Privatizing profits. Socializing risks and losses. When is enough enough?

[Lou]

Gross was part of the problem and he wants a bailout? What a joke!

"Whats so bad about repeated refinancing if the it was to the benefit of the homeowner, and it wasnt an exotic type of loan?

A friend of mine refinanced his home a few times, always getting a better 30 year interest rate."

Your friend is intelligent and responsible. Unfortunately he was in the minority. Most people refinanced to cash out to live the consumerist American dream of BMWs, flatscreen TVs, and other things they don't need. And they refinanced using these ARMs.

[JC]

Every major failing institution in the country wants to get money at the fed risk free rates; banks, brokers, F&F, the Big 3. Meanwhile the federal government is running a half trillion dollar deficit, if everybody gets fed funds rates then these rates rise to become the average rates and the cost of financing the public debt explodes beyond the current $300B.

welcome to Weimar Amerika

[CD]

He has got the weirdest hair on the planet. Was it lowered by a crane on his head in the middle of the night? Who could trust a guy who looks like that, does he sell cars too ?
Boy, the stock market is bleeding big today..... Cheerleaders on CNBC, not happy at all. They do not know what to say anymore, they keep on calling bottom every 5 minutes and the stock market turns them upside down every time... Will the FDIC hold up ?

[anonymous]

And the American taxpayer is supposed to bail out the pyramid scheme because?

[JO]

So much for human progress. As the greatest credit inflation destroys itself over the next 3-5 years, we will look back at these times and realize what a farce this economy since 2001 has been. You cannot have capitalism in a debt based, fiat money system operated by a private bank who is controlled by a group of bankers and corporate chiefs. And whst kind of "capitalism" is this when investor's who make poor decisions try to have the public bail them out? The government and banks established a system to benefit themselves at the expense of taxpayers. Fannie and Freddie and FDIC are exactly that - a clever way for bankers to make loans they normally wouldn't which, combined with the fractional reserve system, resulted in enromous profits for banks and related industries and the enrichment of a small number of politicians.And now that the game is up, expect these pricks to raise taxes and come out with all types of new "regulation". Many calls for bailouts will be designed in fact to benefit the banks at the expense of the innocent taxpayers, many of whom avoided bad debt and have worked hard. I see you're in LA and have heard about your budget struggles. Instead of cutting government spending to control a deficit, guess what? A call by The Terminator for the public to support tax increases. And what happens when taxes are increased in this enviroment ? A slower economy, LESS tax revenue and a BIGGER deficit. It is like science. Politicians in Wahsington and everywhere else need to reject the mostly bad advice given by the majority of mainstream mercantilist economists. I encourage all taxpayers to vote NO to the increases. What needs to be done (and proven time and again in history) is: Cut government spending over time, cut personal and corp income taxes and shift tax burden more to consumption taxes, and watch the economy improve and tax revenues soar within a year to two after the mood of the public improves. Running a short term deficit due to tax decreases is totally acceptable and smart. The last part of the plan? The public needs to revolt aginst guys like Gross who are gaming the system to try to save their asses. Congress needs to be changed big time and lobbyiist's tamed/stopped cold. Get rid of the Fed. I pray for your country in the next 3-5 years. You will get through this but things that supposedly can't happen, will (deflation first, then serious inflation in final stages seem likely). All the best.

[MarkW]

Please help me, I need a bigger Yacht, Plane, whatever...

[jbunniii]

Fortunately, no one seems to be paying much attention to this communist. Bailouts are impractical and immoral. Those who make reckless investments must be given the opportunity to fail. Otherwise they will have an incentive to do it again!

[Nick]

Blah blah blah, government should give me money, we need more socialism, the only way to survive is to give everything to big brother and trust him and his cronies, blah blah. It's hardly even disguised any more.

[NevadaGal]

Bill, your so bloody gross!

Here's one for ya...

You filled your funds with bad debt, that debt is failing fast. Your funds are going done fast so get used to it!!

You took a gamble and lost. The house does not refund your money nor should the taxpayers!

Welcome to Nevada pal.

[jag]

I read on the news about General Motors (GM) wanting a 50 billion dollar bail out. What the hell is going? When companies perform well they support the idea of free markets and are anti-governement intervention of any sort, but when these same companies start failing then they want some government intervention. I think is time we, the people, start a civil war. Lets take control of our nation!

[mbob]

Anyone remember the Three Stooges schtick where Curly starts barking at a guy's toupee that has been snagged by an overhead fish line?

Bill is just asking to re enact this routine. Begging, really.

His bald faced plea for relief is shameful.

[E]

Funny. Over the last decade so many people would say that $100,000,000+ paydays were just fine as all these people "earned" it.

I wonder if those people feel the same way now.

I also wonder if the executives going cap in hand to the Gooberment are calling on their satellite phones from their yachts.

[sunsetbeachguy]

Conservative Nanny State in action.

Google it!

[mucker]

What makes me want to get my shovel to clean these mess makers out is that in the article it says they made BILLIONS on these loans. So now that the gravy train is cold sludge they want us taxpayers to anti up even more money to keep them rich. Yuck! Such Muck!

[Bryan Morris]

Those of you who refer to the whole "privatize profits and socialize the losses/risks" model as "socialism" or "communism" are completely off base. Socialism or communism (kind of an archaic term since no one ever really practiced it) would socialize the profits as well as the losses/risks. The real model that these guys like Gross want is based on combining government and corporate power for the benefit of the rich and powerful elite. These days, the more formal term used for this model is corporatism. The more loose term is crony capitalism. In the past, when right wingers were less sensitive to criticism, this model was known as fascism. Don't believe me? Do some research.

[Wall Street Casino]

You have it wrong, Mr. Gross. “The bill for YOUR speculative profligacy, obvious in the deflating asset markets, can be paid BY YOU, and by the witless, greedy fools like you who lent too much money for too little value.

[tew]

To quote Gross quoting Cramer he "knows nothing". Well, Gross knows lots, but he either doesn't know or doesn't care about justice. In his world view, it's OK to reward the worst among us in order to save us all. It's just fine to pay off the criminals to keep the innocent from suffering. Well what if the innocent are willing to bear the burden in order to strengthen the long term merits of their society? What if the good no longer wish to watch as the bad take the rewards and leave them the crumbs? Well, that would present a problem for Gross. He seems to think that his narrow view on value trumps larger values.

A large financial disruption is always going to redistribute wealth and power. This one, left to sort itself out, will ultimately reward the better among us while reducing resources spent on low value financial activities. However, Gross would have this play out such that the redistribution further piles debt onto American working people and their children in order to prop up a world order of increasing injustice and risk shifting.

Mr. Gross jumped the shark some time ago. It's time to let him and his ilk swim with them.

[dilbert dogbert]

Bryan Morris,
I prefer the term "Looting". It covers all the "isms".
Have a good day.

[River]

The US is basically insolvent. Years of government deficits, huge current account deficits and balance of trade deficits have finally caught up with America. Now the US public for the 1st. time since WW2 owe more than they're worth. Your fate awaits.

[jaded]

well, what did you all expect with a laissez-faire, keep the rich rich and don't stand in the way of unfettered greed Republican in the White House for 8 long years??

I'm a capitalist as much as anyone, and I want to make money with as little interference as possible too, but even I recognize that human nature is to lie, cheat and steal when there are no consequences. Regulation only comes about when there are vices to curb. And vices come back when regulations are dropped.

Sure, let industries self-police themselves! They'll be honest, right? They'll put the public interest first, right?

Don't keep electing these bozos and then express shock when you discover they're really all about enriching themselves and their rich friends as your expense. "Steal a lot, and they make you king." Indeed.