Friday, September 05, 2008

Bill Gross Sees "Financial Tsunami"

According to PIMCO Manager Bill Gross, What's Wrong: Financial Delevering Cutting Demand; Bonds, Real Estate, and Stocks all Affected; Even Assets of "Impeccable Quality"

Video: Link

U.S. Must Buy Assets to Prevent `Financial Tsunami,' Gross Says

Sept. 4 (Bloomberg) -- The U.S. government needs to start buying assets to stem a bourgeoning ``financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

A process of ``delevering,'' where banks are shrinking and cutting off lending, is sapping demand for loans, bonds, stocks and commodities, driving down prices of assets of even ``impeccable quality,'' Gross said. The decline may continue until the government steps in as a buyer, he said.

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross of Newport Beach, California-based Pacific Investment Management Co. said in commentary posted on the firm's Web site today. ``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 should be used to support not only mortgage finance providers Fannie Mae and Freddie Mac, but also ``Mom and Pop on Main Street U.S.A.,'' through subsidized home loans issued by the Federal Housing Administration and other government institutions, Gross said. A new version of the Resolution Trust Corp., which bought assets from failing institutions during the savings-and-loan crisis of the 1980s, may also work, he said.

Pimco, sovereign wealth funds and central banks are reluctant to participate in new capital raising by financial companies after losing money on more than $400 billion of investments, Gross said.


Dave said...

Isn't it something how all these "capitalists" want no interference from government on the way up, but then scream bloody murder for help from the government on the way down?

I have no respect for Bill Gross. I'm sure his motivation for government bailouts is to save his own company's portfolio from destruction.

Louisa said...

I couldn't agree more, Dave.
I have made the same observation myself before. It's all "free market" blah blah blah, until THEY lose money. It's shocking as it is disgusting that this is allowed and shows again who really runs things in this country.

jerry said...

I agree with you, Dave, these investment fat-cats have made money off their portfolio management fees even as the market sinks. They love the idea of privatizing the profits and socializing the losses; yet, they scream SOCIALISM when anyone talks about single payer health care, which would actually save hundreds of billion of dollars over the insurance based model, where administrative fees are extremely higher than our current government health care programs. In addition, the military negotiates with drug companies for the best prices, yet we pay higher prices.

Patrick said...

GSE Bailout - Reality Intrusion

Paulson did it. Now learn what it means.