Not Just Gross, but Disgusting
By: BJ Lawson
I don’t think I’ve ever just posted a link to someone else’s blog content, but this topic is too important, I’m too busy, and I can’t say it any better than Karl Denninger did.
The U.S. government needs to start using more of its money to support markets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund.
Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm’s Web site today.
“Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Gross said. “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.”
The government needs to replace private investors who either don’t have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world’s biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.
About 61 percent of Gross’s holdings were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or Ginnie Mae, according to data on Pimco’s Web site.
Note that Bill Gross has been actively buying this Freddie and Fannie debt as this crisis has been unfolding. As Denninger notes, that’s the problem, not the solution:
Here we go again:
“…the U.S. government needs to start buying assets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund. “
Let’s be clear.
Bill Gross, knowing that this delevering was going on, has gone into the market and bought these “assets” at a fire-sale price.
He was not “stuck” with them due to unfortunate circumstance - he purchased huge amounts of these ”assets” after the credit crisis had begun, and the subprime slime, along with the rest of the overleverage in the financial system, not only was known to people like Roubini and Mish, but also reported in the major financial press - that is, it was public, common knowledge that these securities were crap.
Now, having done this, intentionally, he once again comes to the microphone not to ask that America be bailed out, but that he be bailed out of a bad bet that he knowingly made.
This is the mess that we get into when we practice “moral hazard”.
In fact, let’s call this what it is - attempted robbery. It is not an attempt to help Americans, it is instead a demand to rig the market for his firm’s profit, which is supposed to be unlawful.
Read the rest here.
Pimco is betting that they can benefit from buying securities that are “too big to fail”, and that by buying these securities, they can jawbone their way to a taxpayer-financed bailout from which they profit as people lose their homes. That’s not just Gross, that’s simply disgusting.
Bill Gross and Pimco must not be allowed to throw bricks through our windows.