Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

[Ant]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Meanwhile, drowning subprime borrowers can just leave the keys with the bank and go rent an apartment. Big corporate landlords can buy up the distressed houses for 50 cents on the dollar and rent them out to the same people. The Chinese may even want in on that deal. Owners of capital will own the houses and people living check-to-check will pay rent like they used to. Rents and housing values will fall back into historical norms. Balance is restored. I know it's not that simple, but it makes sense to me.

Why, *isn't* it that simple?? That sounds just about exactly right to me.

We all seem to be in agreement that taxpayers shouldn't have to bail out Wall Street firms, but why should we have to bail out real estate speculators? (If you "bought" a home with no money down, gambling on a price increase, you are NOT a homeowner - you are a speculator. Period.)

Legal remedies exist for people who were genuinely defrauded; why should tax-paying Americans who were prudent enough not to get swept up in the easy-money craze be required to pay off those who were? Speculators already rendered housing in my area completely unaffordable. Now I'm supposed to contribute MY tax dollars to help them KEEP IT UNAFFORDABLE?
WTF?

And just to be clear - - Bill Gross could give a rat's arse about American homeowners. What he wants is a bailout for PIMCO - - more than 40% of PIMCO's Total Return Fund is in non-agency mortgages.

Gross just figured out, as did Cramer, that it's easier to demagogue on behalf of the "homeowner" then on behalf of the professional leveraged finance community.

-Ant

[Ant]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Forgot to include this in my last post. Minyanville has the numbers on Bill Gross' real motives:

http://www.minyanville.com/articles/.../index/a/13864

[Spartacus]

Anyone remember my communist post? Grind the rich into dog food?

That post was not meant as an insult because I partially agree - who will be bailed out, and whose money will be stolen to do it?

[lb]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Denninger had a great idea to bailout homeowners: change bankrupcty laws again.

[zoog]

Bill Gross Wants PIMCO Bailout

Today Bloomberg published the following report.

Aug. 23 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., urged the Bush administration, rather than the Federal Reserve, to bail out U.S. homeowners to avoid ``destructive housing deflation.''

I know Mish is not everyone's favorite person around here, but I think he's got this one right:

Bill Gross Wants PIMCO Bailout

...inquiring minds might be wondering "Who does Bill Gross really want to bail out?"

That's a good question so I started looking for possible clues in Morningstar's snapshot of PIMCO Total Return Fund (PTTRX).
.
.
.
Digging deeper I see the top five holdings of the Total Return Fund are as follows.

1) Fannie Mae
2) Fannie Mae
3) Fannie Mae
4) Fannie Mae
5) Fannie Mae
.
.
.
And even worse is the fact that 40.20% of the Total Return Fund is invested in mortgages which from the above tables it would appear that most of that is not even "quasi-government guaranteed".

The logical conclusion is that Bill Gross is overweight mortgages and wants a taxpayer bailout of PIMCO.

One more thought. Interesting that Mark Kiesel of PIMCO wrote this in May:

One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent. Back in late 2005, I became anxious about my investment in the “American Dream,” . . . A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Yet Bill Gross of PIMCO has been heavily investing OPM (Other People's Money) in mortgages.

Things that make you go hmmm.:rolleyes:

[Spartacus]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

If he's published the same type of advice, or requested the same type of intervention before, when his investments would not benefit, I don't think he should be accused of ONLY talking up his book.

IMHO and IIRC he's saying what he's said before (or at least I've read similar sentiment from him before) AND talking up his book. There's no hypocrisy in his current position.

If he normally calls for no intervention at all, and had an about face when his own investments were threatened, that would be a different thing - he would be a hypocrite.

Forgot to include this in my last post. Minyanville has the numbers on Bill Gross' real motives:

http://www.minyanville.com/articles/.../index/a/13864

[DemonD]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

This is... this whole Bill Gross thing is surreal to me. Gross is one of those guys that I used to think of when I think of great investment leaders, like Bill Miller, John Bogle, Warren Buffett, etc. Maybe not of their specific caliber, but with their intelligence and ethics at least. All previous interviews and articles I've read with Gross read as realistic, while biased yes, but sensible and rational.

This public letter reads to me more like the ramblings of a man who just found his wife in bed with his best friend, his best friend's brother, a midget, and a gallon of jello, all at the same time, and now she is going to divorce him and take 50% of his money and property.

And I'm probably being easy on the guy. I have lost all respect for him as an investor and he might as well become the chief "economist" for the National Association for Realtors because that seems like it's about all he's qualified to do now.

[jk]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

i have a lot of respect for gross and have read his commentaries every month for years. it's surprising to me that he has as many mbs in his portfolio as he does, given things he's written in the past, but i would bet they aren't subprime stuff. my guess is that he fears a real meltdown in the housing market, and is realizing that contagion puts prime paper in doubt along with the garbage. but nothing he says is inconsistent with his prior writings. i'd suggest you read his actual piece, in full, instead of relying on the bloomberg report on it, before you decide on its merits. it's not that long, and can be found at:

http://www.pimco.com/LeftNav/Feature...ember+2007.htm

[zoog]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

it's surprising to me that he has as many mbs in his portfolio as he does, given things he's written in the past, but i would bet they aren't subprime stuff. my guess is that he fears a real meltdown in the housing market, and is realizing that contagion puts prime paper in doubt along with the garbage.

Would you invest in mortgage-backed securities if you thought the housing market was going to have a meltdown?

I guess it's an issue of timing. I can only assume that, at some point, he didn't think the housing market was going to fall apart, or at least, that prime mortgages would be ok. I'm sure he felt safe putting these securities into the fund, or he wouldn't have done so.

Total Return is a core bond portfolio strategy that seeks maximum current income and price appreciation consistent with the preservation of capital and prudent risk taking.

It seems that recently he has come to realize that the subprime debacle has not been "contained", and now he is worried about the potential spread to anything and everything:

Those looking for clues to the extent of the spreading fungus should understand that there really is no comprehensive data to allow anyone to know how many subprimes actually rest in individual institutional portfolios.

He does have a reputation to uphold, after all, and he's justifiably worried about the investment funds he provides, which thousands (millions?) of investors believe to be safe and reliable.

I wonder if PIMCO is taking any steps to reduce the percentage of MBS in their offerings? Or are they stuck with what they have because no one else wants to buy them?

Suggesting a taxpayer-funded bailout sounds like the pleas of a desperate man to me, hoping for a deux ex machina to save the day.

I still have respect for Bill Gross too. I just think this time he got caught unawares like so many others. Every time the stock market has crashed (or corrected significantly), people wonder how could all of these smart guys not realize this was going to happen? If it was easy to predict the market, we'd all either be fabulously wealthy or the market would cease to exist because there would be no risk, thus no reward.

[DemonD]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Oh I read it alright.

I stand by what I said. It seems he's about a half a step out of a 40-story window!

[metalman]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Why, *isn't* it that simple?? That sounds just about exactly right to me.

We all seem to be in agreement that taxpayers shouldn't have to bail out Wall Street firms, but why should we have to bail out real estate speculators? (If you "bought" a home with no money down, gambling on a price increase, you are NOT a homeowner - you are a speculator. Period.)

Legal remedies exist for people who were genuinely defrauded; why should tax-paying Americans who were prudent enough not to get swept up in the easy-money craze be required to pay off those who were? Speculators already rendered housing in my area completely unaffordable. Now I'm supposed to contribute MY tax dollars to help them KEEP IT UNAFFORDABLE?
WTF?

And just to be clear - - Bill Gross could give a rat's arse about American homeowners. What he wants is a bailout for PIMCO - - more than 40% of PIMCO's Total Return Fund is in non-agency mortgages.

Gross just figured out, as did Cramer, that it's easier to demagogue on behalf of the "homeowner" then on behalf of the professional leveraged finance community.

-Ant

the first money in needs to come from the lenders who ran the crap mortgage racket. last money in is taxpayers'. then there are a pile of firms in between. the housing bubble collapse resolution trust corp. can sort it all out.

[jk]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

the housing bubble collapse resolution trust corp. can sort it all out.

i like bill fleckenstein's name for it: gambler mae.

[Finster]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

If he's published the same type of advice, or requested the same type of intervention before, when his investments would not benefit, I don't think he should be accused of ONLY talking up his book.

Agreed he's probably due some benefit of the doubt here. His concern is probably broader than just his book; maybe the whole environment that he operates in, i.e. the credit markets. They obviously have impact far beyond PIMCO's investment portfolios and Gross's personal wealth. Just as obviously, I think he's got this one dead wrong, but the mere fact that we have a difference of opinion doesn't automatically impugn his motives.

The markets are sick, all right, but his proposed cure is troubling. Probably he misses the boat on that latter score due to failure to take into account where the sickness came from, not because of his fiduciary interests.

[unlucky]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

Seems to me that transferring the unpayable debts of US consumers to
the US govt (or any of its agencies) will not solve much, as the US govt already has a few unpayable debt problems of its own.

The debt has to be defaulted, since it cannot be paid. Consumers do this overtly and get foreclosed. The US govt. does it covertly via inflation. So, transferring the debt to the govt. will force higher inflation long run.

Better to leave it with the consumers and make it less painful for them to default.

[Finster]

Re: Pimco's Gross Urges Bush to Bail Out U.S. Homeowners... with taxpayer money

i have a lot of respect for gross and have read his commentaries every month for years. it's surprising to me that he has as many mbs in his portfolio as he does, given things he's written in the past, but i would bet they aren't subprime stuff. my guess is that he fears a real meltdown in the housing market, and is realizing that contagion puts prime paper in doubt along with the garbage. but nothing he says is inconsistent with his prior writings. i'd suggest you read his actual piece, in full, instead of relying on the bloomberg report on it, before you decide on its merits. it's not that long, and can be found at:

http://www.pimco.com/LeftNav/Feature...ember+2007.htm

It did nothing to improve on the Bloomberg piece!

It's riddled with bad reasoning. Just for starters, his logic goes something like this: Because millions of Americans have erroneously assumed their houses were a safe "savings nest egg", the rest of us are now obliged to make it come true. Where the heck does an idea like this come from? It used to be you put your savings in the bank. Yet this even pales in comparison to the blunder embedded in his original assumption. If people were only using their homes as a "savings nest egg", they wouldn't be in trouble in the first place. What they did was engage in a risky speculation of shorting dollars and going long housing - that their homes would appreciate faster than the rate they paid on their mortage debt - and in many cases that they'd be able to either pay the escalating mortgage payment or flip before it escalated. Calling buying a house with money you don't even have yet an act of "savings" is preposterous, and a man as smart as Gross either knows it or has been in hanging around in the high finance set too long.

There is not now and there never was a "housing" problem - it's a credit-gone-wild problem fomented by too low interest rates and too easy money from the Fed and aggressive lending practices designed to profit from it. And if a lot people suffered from a misconception about what a home is for and learned that it was wrong, then the rest of the people would be doing them a disservice in "unlearning" them right back to their original state of error.

Again, this is not about denying remedy to people who were victims of fast-talking lenders and last-minute-closing-table disclosures. But to use taxpayer funds to try and perpetuate the false impression that the price of any asset can only move in one direction is grossly inappropriate and destined to cause yet more trouble ahead.