Why Treasury ♥ Bill Gross
There is a l-o-n-g Business section article on Bill Gross and Pimco in the Sunday Times:
“Amid all of this, Mr. Gross and his firm are trying to shape the government’s response to the economic crisis. He is one of the most fervent supporters of the Obama administration’s plan to enlist private investors to help bail out the nation’s ailing banks and try to revive the economy.
That effort, known as the Public-Private Investment Program, or P.P.I.P., has gained little traction so far. But Mr. Gross has energetically defended its architect, Treasury Secretary Timothy F. Geithner, against critics like the New York University economics professor Nouriel Roubini and the New York Times columnist Paul Krugman — both of whom argue that the strategy is flawed and that it would be best for the government to temporarily nationalize so-called zombie banks to prevent a repeat of the Great Depression.
Such nationalization, Mr. Gross insists, would be an unmitigated disaster. “There are two grand plans,” he said this spring at a meeting of his firm’s investment committee. “One is the Krugman-Roubini plan. They think the banks have so much garbage they are beyond hope. The other side is the administration’s side. That’s the one we’re on. If the other side should ever gain credence, then we’ll have something to worry about.”
Here is where the articles gets especially interesting:
“Mr. Gross is hardly a disinterested observer. Pimco, owned by the German insurer Allianz, is jockeying to be picked by Mr. Geithner to relieve the likes of Bank of America, Citigroup and other banks of an estimated $1 trillion in soured mortgage debt so they can start lending freely again. Mr. Gross calls the plan a “win-win-win” for the banks, taxpayers and Pimco investors.”
I have a few words in the full piece:
“A frequent complaint is this: Why is the Federal Reserve paying Pimco to buy mortgage securities on its behalf, when the firm is already a huge buyer and seller of the same bonds? “That’s the equivalent of a no-bid contract in Iraq,” fumes Barry Ritholtz, who runs an equity research firm in New York and writes The Big Picture, a popular and well-regarded economics blog. “It’s a license to steal.”
Fun stuff . . .
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Source:
Treasury’s Got Bill Gross on Speed Dial
DEVIN LEONARD
NYT, June 20, 2009
http://www.nytimes.com/2009/06/21/business/21gross.html
June 21st, 2009 at 4:14 pm
This may all be news to readers of the NY Times. But regular readers of TBP have many times commented on Gross’s attempt to brainwash the public in an effort to bolster his own portfolio.
June 21st, 2009 at 5:32 pm
What?!? A license to steal???? Where’s my share!!!!
June 21st, 2009 at 5:48 pm
My theory is that Gross has pictures of Bernanke, Geithner and Paulson performing unnatural acts. Don’t know how else he gets such deals and obvious inside info. Alternative is that Gross is good at performing unnatural acts
June 21st, 2009 at 5:50 pm
is this the oligarchy at work still? how long before we finally get rid of them for a little while?
June 21st, 2009 at 6:30 pm
I’m deeply suspicious of Bill Gross and have always thought he was just looking for a way to game the system with the government helping him do it. That said I also don’t believe that the “Krugman-Roubini” plan is some panacea either.
The simple fact is that a pile of bad debt is nothing more than a bunch of promises that cannot be kept. Nothing can be done to make those promises whole, and that reality is source of all the financial and economic misery that ensues.
Any plan that proposes to turn a pile of lies in to thruth is nothing more than another deception of precisely the sort that got us into this mess. IMO this includes Krugman’s free lunch program as well as any clever scam Bill or Timmy cooks up next.
June 21st, 2009 at 7:28 pm
“Amid all of this, Mr. Gross and his firm are trying to shape the government’s response to the economic crisis.”
Well of course, he’s “making” his book.
“Gross has energetically defended its architect, Treasury Secretary Timothy F. Geithner, against critics like the New York University economics professor Nouriel Roubini and the New York Times columnist Paul Krugman”
Let’s see, Geithner over either Roubini or Krugman? Talk about two extremes. I’d take them as Roubini, Krugman or Geithner, in that order. Tho’ I am not that thrilled with my 2nd choice I’d still pick him over Paulson’s stand in.
“Such nationalization, Mr. Gross insists, would be an unmitigated disaster.”
I agree, let them fail. There are banks waiting in the wings for the opportunity to take their place.
“A frequent complaint is this: Why is the Federal Reserve paying Pimco to buy mortgage securities on its behalf, when the firm is already a huge buyer and seller of the same bonds?”
When you really think about that, isn’t it just another way that the FED is monetizing debt?
June 21st, 2009 at 7:59 pm
So how does this fit in with the Obama wants to kill capitalism and hates capitalists and bankers meme(s)?
It’s got to be one or the other, not both… now c’mon…
June 21st, 2009 at 8:06 pm
I’m sorry, but isn’t all this “losses shown as profits due to mark-to-make-believe-maturity” bullshit just Enron to the power of 10?
All we need now is a cooperative accounting firm to shred the evidence…..
June 21st, 2009 at 8:12 pm
this: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=booktv+noam+chomsky
was on C-SPAN 2 earlier today, Noam Chomsky giving a talk at Riverside Church around the Thesis of his Book, “The New Mandarins”
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=book+noam+chomsky+riverside+church+the+new+mandarins
really, should be seen..
June 21st, 2009 at 8:15 pm
Winnie,
Enron, and LTCM were the Dress Rehersals for this off-Broadway Production of Economy Ramp n’ Crash v.2.0
June 21st, 2009 at 8:27 pm
Mark,
I thought it was a resurrection of The Music Man. “Oh, yes, we got trouble. Right here in Beltway City. That starts with T and that rhymes with B and that stands for Bonds.”
June 21st, 2009 at 8:34 pm
Pimco, Bill Gross, and Mush-mount El Arian absolutely disgust me. I can’t count the ways…..
Remember back in the midst of the crises when Gross and El Arian were telling the investing public to buy what the governments going to buy….basically advocating a huge front-running of the Gov’t (and taxpayers) and then would go on CNBC and demand that that government carry through with the buying of certain securities (essentially blackmailing the gov’t)? The worst thing the gov’t has done is yield to these guys….wrecked any resemblance of capitalism we might have had….
June 21st, 2009 at 8:47 pm
I’m starting to get the feeling that objective economic advice is impossible to come by these days.
@Andy T, my comment the other night was not directed at all to you. I enjoy reading yours as well as a selected group of people’s comments. Unfortunately, I have to wade through more muck to get to the interesting bits that I used to.
June 21st, 2009 at 8:58 pm
I just had to share the above explanation. It is simply wonderful!
June 21st, 2009 at 9:04 pm
quantrix,
that was, more than, worthwhile.
hopefully, it’ll put the recent Act into a context that many more will be able to understand.
Though, it was all coincidental, correct?? just improper ‘Incentive’ structures, sleeping Regulators, and plain ol’ Greed, Right? Right? Please tell me that’s Correct, no?
June 21st, 2009 at 9:13 pm
Fun stuff, yeah. Like Patton said in August, 1944, we could still lose this thing. If we do, it will be because policymakers used compromised advice obtained from conflicted people like Gross.
See:
Why the market failed
http://twisri.blogspot.com/2009/03/why-market-failed.html
Adam Smith on the Current Financial Crisis
http://twisri.blogspot.com/2009/04/adam-smith-on-current-financial-crisis.html
What we said
http://twisri.blogspot.com/2008/11/what-we-said.html
Mortgage GSE’s, Predatory Lending…
http://twisri.blogspot.com/2007/08/morgage-gses-predatory-lending-and.html
June 21st, 2009 at 9:18 pm
I would love to just mind my own business and let these crooks do their thing. The problem is that their partner in crime is a force that has significant control over my income (taxation) and finances (inflation – silent taxation).
The only way to minimize the damages from these crooks is to buy a bunch of tie-dye shirts and start a bee apiary+farm. Then, the only interaction you have with the phony economy is property taxes. That just doesn’t sound like fun.
June 21st, 2009 at 10:02 pm
Mark, I never ever would have pegged you as a Noam Chomsky fan.
June 21st, 2009 at 10:06 pm
@Transor: Perhaps Hoffer’s a disaffected “liberal”, turned libertarian, or at least one complicated cat. Hoffer – am I right?
June 21st, 2009 at 10:17 pm
Transor,
I like the *Truth, no matter who Illiuminates it.
I’ve said before, the Left/Right gag is a Bad Joke.
There are Good People, and Good Ideas, across the ‘political spectrum’–as we’ve been programmed to receive it.
~~
Jeff,
never a ‘liberal’, in the current incarnation of the ‘meaning’ of that Label..
June 21st, 2009 at 10:20 pm
As this whole scenario unfolds, I am forced to think how much of it was deliberate? How much of it was guided by unknown hands working behind the scenes? How many people were in the know? I have been an avid follower of this blog for over 2 years now when things were not that bad. However I am constantly plagued by the question, what is the role that “WE” the people played in all of this? I guess it is an answer we will never know. However, can we use that knowledge to make better investment decisions?
Every prudent investor in my opinion always assumes he is in the “know” and makes the decisions accordingly, however the currently unfolding events show us that there is truly a lot of manipulation going on and people who truly believe in the primacy of the markets don’t stand a chance. I also wonder if this amount of manipulation is “possible” and “feasible”….what happens during bull markets?
I am sorry if I am rambling, but these are questions I am faced with being a liberterian. One thing is for sure though, we live in interesting times! and it is educational too!
June 21st, 2009 at 10:25 pm
@Hoffer: Was merely poking fun. I know your “M.O.” by now and appreciate it more and more over time. You’re so right about the Left/Right labels. These ideological blinders are responsible for much destruction in this country. Good ideas, facts and truth (and people) know no political ideology.
June 21st, 2009 at 10:32 pm
Any opinions on the non-stop coverage of the Iran news by the MSM?….AND the potential background lurking news of North Korea? Something tells me the market is being setup for a mini blackswan event perhaps?
June 21st, 2009 at 11:09 pm
Barf:
Mr. Gross, 65, has long been celebrated for his eccentricities. He learned some of his lucrative investing strategies by gambling in Las Vegas. Many of his most inspired ideas arrived while he was standing on his head doing yoga. He knows he has to be well dressed for client meetings or television — but instead of keeping his Hermès ties neatly knotted, he drapes them around his neck like scarves so he can labor with his collar open.
Double Barf:
But here’s the part that makes Mr. Gross salivate. If things go badly, the government is responsible for repaying all that debt. “It’s just like in blackjack,” he says. “That puts the odds in your favor. If you don’t bet too much and if you stay at the table long enough, the odds are high that you are going to go home with some extra money in your pocket.”
June 21st, 2009 at 11:09 pm
the social system is an external structure. the structure defines agent roles. people fill the roles, and in large part behave according to the dictates of the roles. sociology has known this for a long time: you guys need to get over it.
one of the major social changes over the past two centuries has been the legal codification and calcification of social roles. in the 1800’s, if you were a mayor, or a president, or businessman, or entrepreneur, the legal definition of your range of action was, compared to today, extremely weak. as a result, personal attributes played a large part in outcomes, and you had the carlyle conceived “man of history”.
today anyone in a position with a title on it is astonishingly constrained. other agents, in other roles, are similarly constrained: constrained to comply or not comply with your initiatives. we live in a giant mechanism, and to the degree any of us is willing to step into a position of power, we surrender our ability to act independently.
where obama policies resemble bush policies, it is because the political (social) structure dictates that outcome. the only reason people may disagree with those policies is because they have the luxury of standing outside those roles and in ignorance of the factors known to the agents who do fill those roles.
of course, agents could act differently, for example in the way bush ‘00 behaved differently from bush ‘04 or obama ‘08, but that would mean acting in violation of the structural definition of the role, which most often means, acting criminally or extralegally. the fact that bush ‘00 found that pretty much the only way he could get done what his advisors wanted done is not an argument in favor of obama acting in the same way to get done what his adivsors want done. but it does illustrate the maladaptive straits of the modern social structure.
June 21st, 2009 at 11:34 pm
Maybe I’m missing something here. When the FDIC offers non-recourse financing, isn’t that taxpayer money at risk? And wouldn’t banks be willing to slide seed money to private investors to get the garbage off the books because the taxpayer is on the hook for the both the TARP money and the FDIC money?
I realize I may not understand this program, but it seems like a sweet deal for the banks (despite their protests), awfully good gambling odds for the private investors (because you are not really on the hook for the price paid), but who backstops the FDIC? We do.
Am I looking at this wrong?
June 21st, 2009 at 11:53 pm
CTB @ 8:47
So who’s on the “muck list”…?
June 22nd, 2009 at 12:17 am
Or how bout this?
1) Set up a hedge fund.
2) Make an “arrangement” with a bank to bid $85 million on $ 100 million in worthless “assets”
3) Charge bank $10 million “consulting fee”. Put $8.5 million down, Geithner matches (8.5), get FDIC insured loan for $68 million.
Results:
1) Bank gets $85 million for toxic waste, plus expense of $10 million consulting fee (of which $8.5m was kicked back). (WIN)
2) Hedge fund defaults, but keeps $1.5 million of consulting fee (WIN)
3) Taxpayers absorb $76.5m in losses ($8.5m investment & $68m FDIC guarantee).
*- Repeat until even Zimbabwe is laughing.
~~~
BR: Along similar lines, see this:
June 22nd, 2009 at 12:17 am
Not you, DL.
I don’t have a muck list, but personal attacks and partisan bickering annoys me. Maybe I’ve just been reading so many posts that some of them seem redundant.
June 22nd, 2009 at 5:34 am
Sacha Baron Cohen as Ali G interview Noam Chomsky:
http://www.youtube.com/watch?v=4zPHAhj_Cio
June 22nd, 2009 at 5:50 am
Jeff,
I appreciate that. Though, was, just, stating it again for the, impermanent, record/ nuevo ojos..~
June 22nd, 2009 at 5:50 am
[...] That effort, known as the Public-Private Investment Program, or P.P.I.P., has gained little traction so far. But Mr. Gross has energetically defended its architect, Treasury Secretary Timothy F. Geithner, against critics like the New York University economics professor Nouriel Roubini and the New York Times columnist Paul Krugman — both of whom argue that the strategy is flawed and thRead more at http://www.ritholtz.com/blog/2009/06/bill-gross/ [...]
June 22nd, 2009 at 8:42 am
Can’t say i disagree with prevailing view. But sometimes you have to turn a bad thing into something that works as an investor–
So that’s why the ONLY actively managed anything-fund i own is the PIMCO Total Return Bond fund. I saw the writing on the wall months ago with them in bed with the Feds– i knew i couldn’t beat ‘em, so riding the coat tails made financial sense, if not somewhat repugnant…
PIMCO is trouncing the AGG [the aggregate ETF bond fund] by 5% YTD, and it yields about 5.5%]
June 22nd, 2009 at 8:57 am
@H.T.
It’s sad we have to live in such times where some of the safest investments are bankster investments.
June 22nd, 2009 at 12:07 pm
Yeah nationalization would certainly be a disaster for Mr. Gross and his masters if the alternative is to hand them a zillion in extra profits at taxpayers costs. I guess the journalist didn’t feel like asking him why the thing that worked so well for the Swedish taxpayers would be such a disaster for the americans.
June 22nd, 2009 at 1:04 pm
I have seen that article and comments. Gross cannot escape his connection to a deal there.
I still think we are experiencing foreign pressures beyond what is being exposed and that is driving this middle ground approach, rather than the savings and loan crisis which was isolated to the US. Not only are our banks heavily invested in by outsiders (and recently doubled down to meet knew funding requirements), but we created a global model and cannot attack it so aggressively as failed, or other governments will fail. And I think Gross knows it and is slightly opportunistic in that knowledge. So for him to say it would be a disaster I think does have merit.