Quote of the Day: Bill Gross on Credit Markets

Bill Gross on the current credit situation:

"In my opinion, the private
credit markets have forfeited their privileged right to operate
relatively autonomously because of incompetence, excessive greed, and
in minor instances, fraudulent activities.

As a result, the deflating
private market’s balance sheet is being re-nationalized in some cases
with increased regulation, in others with outright guarantees and
agency lending. Ultimately government programs which support private
credit market assets may be required in order to prevent an asset
deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices."

-Bill Gross, Pimco
>

Gross goes on to note that "homes are the most highly levered and monetarily significant
asset that American consumers own, if they decline much further they
will drag the rest of the economy with them," and therefore any further decline needs to be stopped quickly in order to avert additional crises.

This explains all of the Fed’s recent machinations . . .

>


Source:
When I’m Sixty-Four 
Bill Gross
PIMCO, April 2008  http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+March+2008.htm

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What's been said:

Discussions found on the web:
  1. edhopper commented on Apr 2

    But they need to decline much further to become affordable to the average buyer.
    A 20%-30% fall in prices is necessary for home prices to get back to the traditional mean. Without that there will be a greater and greater decline in sales.
    Above 3X income, homes are a poor buy.
    The LAST thing that needs to be done is prop up home prices to their current bubble level.

  2. Dexter commented on Apr 2

    You can’t re-inflate a bubble that has burst. The Fed tried with the NASDAQ and that didn’t work out to swell.

    Why should the Government bail out homeowners? Should they also bail out renters?

  3. attobuoy commented on Apr 2

    I can’t find the source of this quotation running through my head:

    I can summon the tide,
    And so can any man.
    But will it come?

    Somehow it seems relevant.

  4. Franco commented on Apr 2

    How can home prices be propped up if they are still so far above the level of affordability in most regions. Will the Fed being giving everyone a huge rise in income? Or will we be returning to selling people houses they can not afford with loans they can not repay?

  5. malabar commented on Apr 2

    Where was Bill Gross when house prices and mortgage securitization were heading towards the moon?

    Amazing that these billionaires need JoeSixPack to keep them in the clover. Now that we know all these financial institutions balance sheets are not what they claim to be should we fall for their fear tactic that middle class Americans will be destitute if we don’t pony up and make sure that estate in the Hamptons does not get a margin call.

  6. Pool Shark commented on Apr 2

    Gross may as well be giving his advice to the crew of the Titanic;

    He can run around on deck screaming orders to anyone who will listen, but there is nothing they can do to prevent the ship from going down…

  7. Stuart commented on Apr 2

    One cannot just snap their fingers and halt the decline in home values for crying out loud… Home values need to find a new pricing equilibrium between too little demand and far too much supply; prices more inline with normal debt to income levels. Bill Gross’s suggestion is to interfere and maintain artificially high prices, and is another in your face piece of evidence of the dire situation we’re in. For those who understand home values are at the epicenter of the credit squeeze and still have further to correct, they’re acknowledging not a damn thing can be done to halt the duress the bank’s balance sheets are under until then.

  8. pmorrisonfl commented on Apr 2

    > “The (house price) decline needs to be stopped quickly in order to avert additional crises. ”

    Bill Gross knows more about money than I do, but wouldn’t supporting house prices at a level above historical income and rent ratios cause other crises? And doesn’t it rob the little guy to pay the big guys?
    My blood pressure would go down if I had a good explanation for why (mostly wealthy) people think this is a good idea beyond what appears to be self-interest.

  9. karen commented on Apr 2

    “Where was Bill Gross when house prices and mortgage securitization were heading towards the moon?”

    Buying MBSs, maybe?

    Malabar, your post was very well stated.

  10. John F. commented on Apr 2

    So we’re going to prop up home prices, in effect bailing out people who bought more than they could afford at bubble prices, at the expense of people who’ve been saving money and waiting out the bubble? Socialism doesn’t come close to describing how rotten this idea is.

  11. sunsetbeachguy commented on Apr 2

    Falling house prices are the solution, not the problem.

    Talk about intergenerational warfare.

    Gross has typically been magnanimous with regard to being on the front wave of the boomers, but now he wants X-r’s and Millenials to become debt slaves.

    No thanks.

  12. patient renter commented on Apr 2

    So, basically, he’s saying the US government needs to do everything it can to fix prices (contrary to the GSE’s missions of affordability, might I add).

    When has price fixing ever worked out? (hint: never).

  13. Kuds commented on Apr 2

    The horses have already left the barn. Too late Gross. Let supply and demand rule and see what happens.

  14. John commented on Apr 2

    The problems are not because housing prices are falling. The problems exist because housing prices rose too far too fast.

  15. jojo (brion) commented on Apr 2

    all i can think is that Mr. Gross ALSO has some large position that needs to be made whole….

    gross

  16. Darkness commented on Apr 2

    I’m with sunsetbeachguy on what’s a problem and what’s a solution.

    Sounds like some bubbles still exist . . . and Bill Gross is living in one.

    If this were the Soviets such talk would at least be part of a larger rhetoric as opposed to an ideological 180. That makes it grind on the nerves all the more.

  17. Unsympathetic commented on Apr 2

    Ironic that Gross says that, considering that HE was the one whose rampant greed was fed by the housing bubble. His company’s desire to purchase “AAA” securities due to their yield was precisely what drove the MBS securitization boom, not private credit.

    There wouldn’t be a housing bubble without the desire of hedge and bond funds to hold supposed AAA-rated high-yield securities.

  18. Mike M commented on Apr 2

    I used to have a great deal of respect for Bill Gross. A couple of things he should consider: Is propping up asset prices a real solution? Is anyone harmed when you (or govt bureaucrats) do so?

    The truth is that keeping housing overvalued hurts our children and grandchildren. First time buyers today will be debt slaves. Boomers like Bill keep overvalued assets and shackle the next generation.

    Hey Bill, how about letting this generation deal with its own mess?

  19. sunsetbeachguy commented on Apr 2

    I went and read the whole thing.

    He is clearly talking his book. At least he is consistent and opportunistic.

    Not bad characteristics for your money manager.

    In the public interest?

    Not in the least!

  20. gaius marius commented on Apr 2

    i’m not sure how the hell it could be done, frankly. gross knows as well as anyone that house prices were inflated by increasing the purchasing power of homebuyers by 1) providing negative real interest rates, 2) eliminating any and all underwriting standards, and 3) tapping huge pools of “safe” capital via a ratings agency fraud under the rubric of securitization. 2006 prices are sustainable only under those conditions maintained in perpetuity, as far as i can tell. is that what he’s proposing?

    mcculley’s idea of writing down mortgage principal to keep home”owners” out of negative equity as house prices fall — problematic as that is — is a vastly better idea simply because it would allow a necessary normalization of debt-to-income to take place (indeed would probably encourage a more rapid decline in home prices). i accept that a socialization of losses must come, as it always does in major financial crises. but let it be a smarter one than attempting to sustain the unsustainable.

  21. Stuart commented on Apr 2

    “He is clearly talking his book.”

    Absolutely. With both hands wide open looking for his bailout.

  22. VennData commented on Apr 2

    Bill Gross is talking his book, but at a very macro level. The dinosaurs of finance are willing to make a compromise, but it’s too late.

    They know that when home prices drop another Roubini-described twenty percent that the financial system as we know it – as they know it, and profit from it – will be vigorously re-regulated. Think FDA and the IRS combined.

    When the Right’s best solution is today’s WSJ opinion piece by Holman Jenkins to blow up all the excess housing (maybe coax the terrorists into doing it?) You know they don’t have any ideas, however…

    …the leftish Obama, eager-to-please McCain, or earnestly caring Clinton will join with a Democrat Congress to put a yoke on ’em (a well-deserved yoke I might add.) All these finance positions will go the way of the buggy whip business. The whole finance business should be up on the web, indexed, and run by highly regimented clerks checking to see your all-World index fund is still there

    I don’t know what the best investment is to avoid the upcoming mess though it’s definitely non-US. But I will bet the worst investment over the next ten years will be Manhattan real estate.

  23. Jonathan commented on Apr 2

    Bill,

    Why is it that you are Free Market….until it affects you?

    Are you really Free Market, or just interested in making money any way you can, even if it means that someone else makes less?

  24. Robert Beatty commented on Apr 2

    A simple substitution in Gross’s statement would make it correct. Simply replace “prive credit markets” with “Federal Reserve” in his sentence below:

    “In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities.”

  25. pmorrisonfl commented on Apr 2

    > When the Right’s best solution is today’s
    >WSJ opinion piece by Holman Jenkins to
    > blow up all the excess housing (maybe
    > coax the terrorists into doing it?)

    How about having the Army leave Iraq and invade Ohio, say via Maryland? Then send the troops home, issuing Home Depot gift cards along the way where the tanks wreck stuff. There, two birds with one stone.

  26. TKL commented on Apr 2

    Watch out for this seemingly genial fellow. The best way to think of him might be with a couple of horns on his head.

    Gross has been singing this tune since last summer, at which point PIMCO was up to its neck in mortgage debt. (See “Bill Gross Wants PIMCO Bailout”, easily found in various places on the web, including http://globaleconomicanalysis.blogspot.com/2007/08/bill-gross-wants-pimco-bailout.html.) PIMCO’s Total Return Fund seems to have gone from 40% mortgages to 6% mortgages since then, but query where all that went. Did it go into the PIMCO Income Opportunity Fund, which appears to have had its IPO in October? You cannot judge the merit of Gross’s advice without knowing how much the holdings of PIMCO would benefit from his proposed price-support socialization.

    At this point, nobody should be getting away with this kind of unbalanced nonsense. We now know that home prices rocketed way too high, that our collective ability to bear debt reached its limit, and that a return to sensible first principles of lending and personal finance are the solution. We don’t need some charlatan with skin in the game telling us otherwise.

  27. larster commented on Apr 2

    Pimco has bought mortgage securities by the boatload recently, betting on a gov bailout. So, Gross is talking his book, as is Blackrock per the latest Barron’s. Wouldn’t it be ironic if the only people that were rally bailed out were the gazillionaires? Or would it be what you would expect from the fools in DC.

  28. Ross commented on Apr 2

    The solution is a combination of price declines, wage increases and TIME.

    Ah, wage increases. First demand pull and now, cost push. We’re gonna have flation..

  29. Tom F. commented on Apr 2

    Gross is an idiot – I don’t care how much money he manages. House prices are collapsing because people can’t afford the pieces of crap at the current levels. Yet that jackass wants to prop everything up and maintain ststus quo. He and McCulley are nothing but inflationist bailout crybabies.

  30. Swan of Avon commented on Apr 2

    It’s from I Henry IV:

    Glendower: I can call spirits from the vasty deep.
    Hotspur: Why, so can I, or so can any man;
    But will they come when you do call for them?

  31. Aurora Borealis commented on Apr 2

    The congregation of state capitalism grows daily.

    “I am the state.” Me too!

  32. jkw commented on Apr 2

    The solution that provides the best compromise between creating moral hazards and destroying the US economy is to convince the banks to split the loans. Make one part a non-recourse loan, and the rest of it is a standard mortgage (if you don’t pay, the bank forecloses). People who agreed to pay too much for a house will be forced to either follow through and pay for it, or else take a big hit to their credit record. The foreclosure rate will drop, because people will only have to pay a reasonable amount for their house to prevent foreclosure.

    Any plan that only benefits people who are behind on payments is doomed to fail. As soon as you give people an incentive to skip 3+ payments on their mortgage so that the bank will renegotiate the loan, the banks will stop getting payments from the majority of borrowers.

    Another option would be for the government to give out loans with similar characteristics to student loans to people who can’t pay back their mortgages. Reduce the principal on the mortgage in exchange for a loan that will follow you for the rest of your life (no way to discharge it in bankruptcy).

    The problem right now is that real home prices are too high. There are only two ways to fix that. The less painful option is controlled, moderate inflation (7-10%). 10% inflation with level house prices would fix the problem in 2-4 years (depending on how high interest rates go with higher inflation).

  33. Ian in NZ commented on Apr 2

    Bill Gross has purchased Billions of commecial paper, he knows that when the fear stops and a mild recovery takes place, he will bank a huge profit. So hes is also talking up his book. Maybe Gross is happy t have a hammer and sickle on the USA stars and stripes ! Govt control, and not free markets.

  34. Brian Mihalic commented on Apr 2

    Here’s the way to accomplish what Bill Gross envisions: freeze home prices and give all potential homebuyers huge incentives to buy the homes at the fixed prices. Those incentives should be outright grants of cash, not tax deductions or anything indirect. This strategy will fill vacant homes quickly – a good alternative to bulldozing them (which has just begun in Modesto CA).

    While we’re at it, since the Treasury backstopped the Bear Stearns deal with taxpayer dollars, shouldn’t all U.S. taxpayers be given stock grants of JP Morgan stock? We’re paying for it after all, so it should be properly nationalized, right?

    Next I propose a five year plan of re-industrialization of our economic engine which is being left pitifully in the dust by Asian economies.

    I think if we examine the teachings of Marx, Brezhnev, et al we might find some more inspiration.

  35. Tom F. commented on Apr 2

    I posted my previous comment before I read all the others. It appears to be unanimous – Gross is an idiot – or a crook – or both.

  36. Winston Munn commented on Apr 2

    If the only thing needed is affordable housing, then where are the calls for a 50% across the board pay increase for households?

    Wait, I forgot….the proletariat isn’t allowed to profit…only to borrow, and borrow, and borrow, and…..

  37. LFC commented on Apr 2

    Hey Bill, how about letting this generation deal with its own mess?

    Leaving messes for the next generation to clean up seems to be a hallmark of the current crop of politician and businessmen.

  38. Winston Munn commented on Apr 2

    Dear Bill Gross:

    We received your memo. Unfortunately, it arrived 5 years too late.

    Sincerely,

    The New York Federal Reserve Bank

  39. jag commented on Apr 2

    There is no way to stop the decline in housing prices. Incomes are falling or stagnant, loan qualification is normalizing upward and the supply of homes is at an all time high.

    This means a massive imbalance in supply and demand and the more politicians claim to somehow “stabilize” prices, the longer most qualified buyers will wait to see if they just aren’t lying again.

    You’ll know the bottom has been reached when median prices PLUNGE. Why? When the distribution of sales is overloaded on lower priced properties it will mean a base is beginning to form. Paradoxically, this will indicate STRENGTH not weakness. Apparently few seem to understand how the median works in statistics and its implications for reading the health of the housing market.

    Giant drop in the median housing price: go long the economy.

  40. MarkC commented on Apr 2

    I propose we stabilize home prices by drastically easing lending standards.

  41. DL commented on Apr 2

    I agree with the other commentators that Gross is an idiot. Nevertheless, it may be of some value to speculate on the actual price tag (to the taxpayers) to arrest the home price decline. Some politicians do appear to support the idea of using some taxpayer money to mitigate the decline.

  42. attobuoy commented on Apr 2

    Thank you Swan.

  43. Kill the Commie, Get the Points commented on Apr 2

    Hey Winston Munn,

    Where do you think should the money come from to subsidize your “50% across the board pay increase”? Are you like Obama who thinks that the money growing on the trees? Just curious …

  44. Lars commented on Apr 2

    Maybe the next Administration can give free government houses along with free government healthcare.

  45. BMBull commented on Apr 2

    If the consumers actually did “own” their homes and weren’t so “highly levered”, we wouldn’t be in this mess. It was the excess leverage that propped up housing prices too far in the first place (zero money down – can you even call it ‘leverage’ when the ‘owner’ has zero stake in the asset?).

    The gang is right – keeping prices up, at any cost, is hardly the solution. The homeowner must be ‘delevered’ along with everyone else in this cycle of debt destruction.

  46. ilsm commented on Apr 2

    Will $10,000 tax credit make a person a fool?

    The folks they need to get in the game don’t pay much in taxes.

    In my case it may move me to an auction or two.

    Will they give it for each property I buy at auction?

    Can I spread it over several years?

  47. Rockitz commented on Apr 2

    So Gross thinks the irreponsible (lenders and borrowers) should be bailed out at the expense of the responsible? BOHICA for taxpayers and all of those who’ve been saving for a return to reality in home prices. What a moron!

  48. Roger Bigod commented on Apr 2

    Now, Bill, don’t go wobbly on us.

  49. DonKei commented on Apr 2

    Hmm…Gross seems to be saying that the cure for over-priced, over-leveraged, underwater homeowners is…higher home prices? That’s like the fed thinking the cure for $100/bbl oil is lower interest rates.

    Orwellian and disgusting. But don’t worry, I’m sure that somehow more dollars for Bill from Ben will make it all better. Until it doesn’t.

  50. OldVet commented on Apr 2

    Gross’s panacea of propping up housing prices is cynical and irresponsible. The responsible behavior by Govt and others is to let housing prices fall to something affordable on average American salaries. This credit balloon has got to be popped, or many tens of millions of Americans will be kept out of the housing market. You can’t make interest rates cheaper than they are today, and they’re no substitute for lower housing prices.

  51. Mind commented on Apr 2

    What about the 1/3 of homeowners that don’t have a mortgage – that paid it off or never had one – that paid cash? Do we deserve something for not being a problem?

  52. waas commented on Apr 2

    Hmmmm PIMCO has huge MBS funds and he wants a government bailout??????????

    Talk your book much Bill?

  53. Winston Munn commented on Apr 2

    Kill the Commie, Get the Points wrote, “Where do you think should the money come from to subsidize your “50% across the board pay increase”? Are you like Obama who thinks that the money growing on the trees? Just curious …”

    You miss the satirical nature of the sentiments – if a 50% across-the-board pay raise is nonsensical, how sane is a call to artificially support home prices?

    The problem is n-o-t home prices; it is home affordability. Either prices must fall or wages must rise.

    Money does not grow on trees – at the same time, neither does it grow in home equities.

  54. mo commented on Apr 2

    Sigh.

    I listened to Gross’ commentary last night.

    Many have already said this type of thing – but I need to express my frustration.

    I sold my co-op in 2003, after the price increased 40% in 2 years. Other things influenced my decision – coked up neighbors, reliving the downturn after I purchased my first co-op in 1987….

    I’ve rented since then. No bailouts for me.

    I couldn’t believe my ears when I heard Gross talk about supporting home prices.

    All I can do is hope that karma really exists.

  55. 12th Percentile commented on Apr 2


    What about the 1/3 of homeowners that don’t have a mortgage – that paid it off or never had one – that paid cash? Do we deserve something for not being a problem?

    What they hell are you talking about? You aren’t paying high interest rates to the banks. You ARE the PROBLEM as far as they are concerned. Deadbeat.

    Hey Pimco, why don’t you tell the glaciers to stop melting, too, if you are going to be making wishes.

  56. Donny commented on Apr 2

    Gross actually lives less than 10 miles from me in Orange County. He of all people, should know, home prices MUST decline further, especially in over inflated communities (like Orange County, CA), otherwise the next generation of buyers will continue to be priced out.

    This correction in real estate is necessary and must continue.

  57. Pat G. commented on Apr 2

    I’ve either listened to or read some of his comments and I concluded that he kinda speaks out of both sides of his head.

  58. Tom Durff commented on Apr 2

    Barry,
    Considering the consistent responses to Gross’s comments, how about providing us all with an effective (as opposed to wacko right-wing) means of expressing these opinions to Dodd and Shelby and the others in the house and senate who are at the center of these immoral proposals?
    TomD

  59. Owner Earnings commented on Apr 2

    Gross manages a lot of money (debt) and has for a long time. I think he’s up to $750 billion.

    I used to look to him for insight.

    Lately, as his most recent paper(s) shows, he has lost his touch. Actually, by what he is suggesting, he probably never had a good understanding of things.

    I have yet to hear anyone as successful as he is suggest anything similar to what he is suggesting.

  60. Jean S commented on Apr 2

    you can try the national write your congressman site–I believe it’s http://www.nwyc.com.

    It’s usually more effective if people send individual messages (vs. a “canned” message). But hey, Barry, if you want to provide a general template, I would not object.

  61. Chief Elf commented on Apr 2

    I used to have a lot of respect for Bill Gross but he’s beginning to sound like just another government-type shill. The constant drum beat of government interventionism that falls from his lips is getting sickening. His true character has come to the forefront, oink, oink….send in the helicopters.

  62. SteveC commented on Apr 2

    Barry, I found it interesting to read this post on real estate prices, then see the one below with a wager on gold prices. The two are linked, along with oil, whether we like it or not. Artificially inflate home prices, and oil will soar and the dollar will crash. We can’t target inflation directly to homes, without it spreading elsewhere.

  63. CaptiousNut commented on Apr 2

    With all those hundreds of billions to manage, why is Bill Gross on television so much?

    Obviously, he is, and has been, an all-out political advocate. I would even argue that he’s a criminal frontrunner. How is getting long the short end and spending near every day on the airwaves clamoring for rate cuts not an unethical, lawbreaking tack?

    Spitzer, Cramer, Gross,…

    Now I understand the original, lumpen appeal of the public square pillory.

    Has anyone at CNBC ever taken Gross to task on air?

  64. Flic1 commented on Apr 2

    Bill Gross lost all credibility after he hired Greenspan as a consultant….’nuff said.

    Supporting inflated house prices?? How can people be so smart…yet be so stupid at the same time?? What planet do I live on????

  65. jojo commented on Apr 2

    Dear Bill Gross:

    You crediblity with anyone cliff dove when you predicted DJIA 5000 years ago.

    You constantly are flaunting the other side of your trade due to your Titanic size…the only way to create an edge for your book is to fan fears.

    Spare me…and Barry – don’t you see through his BS?

    Pullease!

  66. anonymous commented on Apr 2

    Isn’t the underlying message here that Wall Street and Banking sector are waking up to the fact that if house prices plunge further their balance sheets are screwed beyond any ability to hide it?

    I dont’ think its sympathy for the homweowners. I think the sudden concern here is preservation of the investment class. They don’t care about middle class housing — they do very much care about their investments which they finally understand are based on a stack of overpriced and overleveraged housing stock. If housing values continue to drop, the investment banks continue to loose value. Think of hits that have already occured to the financial sector, then flash forward and imagine that sector’s balance sheets if real estate drops an addition 15-20%. That would create a situation where a majority of people who purchased homes with 20% down in the last 5 years would likely have zero equity in their homes (best case scenario) if not be upside down on their morgages. It would be financial armegeddon.

  67. Terra Andersen commented on Apr 2

    I think this is the beginning of a massive slide in the middle class that has been looming over the US for sometime now. It’s also quite sad that if the governement does decide on bailouts, no one really wins… since as previously stated on this thread.. equity in people’s homes would continue to fall.

  68. Tom Vanderwell commented on Apr 2

    I think Bill is right in the sense that it all comes down to house prices. Until house prices stabilize, we aren’t going to see any improvement in the credit markets.

    I disagree with his desire to have the government prop up housing prices. My brother lives near San Fran, and there is no way that he could afford to buy his house in 2005, but he could when he bought it in 2000. If the government propped up housing prices, we’d all pay more in the long run.

    I also think that, since all real estate is local, the price adjustments are also going to be local. The places that saw the biggest run up are going to see the biggest and longest downturn.

    How does the government choose which people to help? Do you help people in California because they took out a liar loan but not the people in Michigan? I don’t think so.

  69. yomd commented on Apr 2

    HELLOOO!!!!
    is anyone following Mr. Gross speeches ?

    Lately he is constantly trying to push the idea of a government buyout of the mortgage market. Just check the interviews on Bloomberg and CNBC

  70. Grodge commented on Apr 2

    Bill Gross may a lot of things, but “idiot” is not one of them. He manages three-quarters of trillion dollars, has a nicer home that anyone on this comment list…

    … and gets a government handout.

    Saps like us go to work for a paycheck that is worth 20% less than it was 2 years ago, and pay taxes that go to bailing out investment banks.

    Who is the “idiot?”

  71. km4 commented on Apr 2

    if homes decline much further they will drag the rest of the economy with them,” and therefore any further decline needs to be stopped quickly in order to avert additional crises.
    – Bill Gross Pimco

    I really had a good laugh because 25+ yrs of increasingly financial engineered driven bullshit for the US economy with massive market bubbles has created systemic damage.

    1. The USA needs $2B a day from China et al or could not keep its economy stable or spare the dollar from collapse.

    2. The USA already has close to $10 Trillion in national debt

    3. The USA has a trade deficit of $800B/yr

    4. The USA is the prime engine for derivatives ‘ticking bomb’ that grew into a massive bubble, from about $100 trillion in 2000 to $516 trillion by 2007 that is starting to go off in blowback stages.

    5. The USA already has way too many Americans overwhelmed by personal debt racking up a household debt-to-income ratio of 1.42 ( for total of $13.8 trillion in debt including mortgages ) that already matches the country’s $14 trillion G.D.P.

    6. The USA has Bushie boy racking up $32 Trillion dollars in total liabilities and unfunded commitments for future payments since 2000.

    for about 90% of America your standard of living and house price is destined to go down.

    The Fed can try to continue the kabuki dance and in denial shill idiots can speak about the illusion of prosperity but the problem is already systemic after the 25+ yrs of supply side economics, deficits don’t matter and looting of the US treasury.

  72. Harleydog commented on Apr 2

    We truly are in a parallel universe. Reward idiocy and recklessness while penalizing fiscal prudence and soundness. I wish I could say I’m shocked.

    Mr. Gross up to his eyeballs in toxic paper is crying for help. When I make millions it is my intelligence and market acumenb but when I lose it is someone else’s fault. Uncle Ben, Uncle Sam save me !

    Gross is right where he belongs and no more fitting place than Pom Pom TV. Right next to Mssr. Fink and Doll of no bid Fed mgr BlackRock.

    And to think we rag on the communists and other crackpot banana republics. Doesn’t Mr. Gross know its the shorts fault all along.

  73. Rod commented on Apr 2

    km4,

    I agree 100% with your post.

    As foreign investors say,the party is over in the USA!

  74. Greg0658 commented on Apr 2

    Flic1 says – Bill Gross lost all credibility after he hired Greenspan as a consultant….’nuff said.

    Having an inside track to the game plan and the actual Admin take on it should help:
    Rebuilding Americas Defenses – Strategy, Forces and Resources For A New Century – The Project for the New American Century, circa September 2000

  75. jeff macke’s comb commented on Apr 2

    Bill Gross has always been a hack, its just now catching on to the public at large. Maybe he can loan the little guy a couple hundred million out of his own pocket that he “earned” underperforming for the past 10 yrs, if he’s so concerned about the economy.

    mr magoo lookin douche, oh wait thats mcculley

  76. SPECTRE of Deflation commented on Apr 2

    Maybe just maybe Bill it’s the gearing that was used by everyone in finance on top of the housing bubble problem. How would you have $515 Trillion Dollars in Derivatives be unwound? Call a timeout? All the malinvestment must be purged before a new cycle can start. We are digging a deeper hole, and soon we won’t be able to reach the top to get out.

    Look at the assets to equity in any of the playas to see how tenuous writedowns become with the gearing that was used. You wipe out your equity PDQ.

  77. Darkness commented on Apr 2

    Do we deserve something for not being a problem?

    Yeah, you get to sleep well at night. That’s worth a lot. We’ll be there in three years. After that, it’s cash all the way baby. No more loans. Maybe Islam is onto something with that rule.

  78. Steve Barry commented on Apr 2

    I have a CD through Merrill with People’s Bank..it was due October 2008…it was just called and they will pay me dollar for dollar on principal.

    What does this imply? They can’t afford the interest payments?

  79. Kuds commented on Apr 2

    After reading all the comments, I do come back to the Subprime Primer that has the Norwegian villager cursing at the CDO/SIV (whatever) salesman. The premise of all the securitization of toxic mortgages was that house prices will always go up. I’m sure Gross is thinking about those mortgage securities that have nowhere to go, some of which he may own for his funds. His fantasy that somehow the government can stop the price erosion is not feasible. There’s just too much money involved, too much negative equity to erase, and the Norwegian villager will surely be cursing for a long time. When demand is broken beyond a quick fix, the supply has to follow the market and bring down the prices.

  80. Fuzz commented on Apr 2

    Bernanke didn’t HAVE to tell any truth today. They didn’t ask him any real questions. Like why did he upsurp the Constitution stipulating Congress as the sole entity for appropriating funds? He used OUR money with the blessing of Bush to grease an insider deal with a member of the NY Fed, Jammy Dimon. BlackRock gets a no bid, bottomless contract to administer this crap. This was “to fix an emergency” that was in the making his whole term at the “nonregulating” Fed. Instead you had Schumer buying his BS about Bear and then expecting him to “fix” housing too while he was at it. He’s thinking it must be easier to waste taxpayer money when you don’t have to garner votes to keep your job. The American public is getting sold into slavery. Bill Gross cries like a baby that “somebody” should shore up housing. $5 trillion should be enough to secure his profits. These guys make Tom Skilling look like a piker.

    They should all be in jail.

  81. rickrude commented on Apr 2

    its surprising we have a Gross thread after Sinclair. Gross asking for a bailout after having pigged off of Greenspan’s easy money
    era. Well too bad… the financial bubble,
    the bond bubble will pop soon.
    We will soon see the bond pigs get roasted
    in the eras greatest bubble.

  82. Johnnyvee commented on Apr 2

    Here come the no interest gov’t loans–thank you sir may I have another.

  83. Marcus Aurelius commented on Apr 2

    It’s about wealth distribution. Prica anything you want, the way you want, and if no one can afford it, it won’t matter.

    When enough people get poor and desperate, the poor will drag down the wealthy – physically, if necessary – and redistribute the wealth by force.

    The wages of the greed of some is poverty for all.

  84. BigD commented on Apr 2

    I have a CD through Merrill with People’s Bank..it was due October 2008…it was just called and they will pay me dollar for dollar on principal.

    What does this imply? They can’t afford the interest payments?

    Posted by: Steve Barry | Apr 2, 2008 10:01:25 PM

    Steve,

    This has nothing to do with insolvency. This is simple asset-liability management by the bank. Look at what has happened with interest rates over the last 120 days. It is much cheaper for theme to call your CD and issue a new one at the lower rates. You got more yield up front in exchange for that optionality.

    BigD

  85. wunsacon commented on Apr 2

    I’m a friggin socialist. Bailing out reckless borrowers and lenders is *NOT* socialism. It’s just *RETARDED*.

    Roll back the 2005 bankruptcy act.

    Hey borrower, can’t pay your mortgage or cc? Declare bankruptcy, rent an apartment, and start over. If things get worse and you end up on the street, welcome to workfare. Before that, no socialism for you!

    Hey, lender, can’t collect on your loans? Garnish. Foreclose. Does the borrower declare bankruptcy? Too bad! No profit for you!

  86. trolling for dollars commented on Apr 2

    >> Like why did he upsurp the Constitution stipulating Congress as the sole entity for appropriating funds? He used OUR money with the blessing of Bush to grease an insider deal with a member of the NY Fed, Jammy Dimon.

    But, if we don’t bail out ibanks, the terrorists win!

  87. trolling for dollars commented on Apr 2

    I don’t see JustinTheSkeptic around. So, I’ll stand in for him, with his obligatory quote from Mises:

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

  88. Dane Wayne commented on Apr 3

    Ah, I get it Mr. Gross, when the worm turns and a two-headded chimpanzee can no longer make a buck in a mortgage credit market destroyed by the greed of the likes of you, Banks, Wall-Street and Mortgage brokers and the incompetent policing by regulatory agencies of all the swifty financing square-dancing on the part of all of you, NOW it’s Socialism for you and Capitalism for the rest of us.

    No Thank You! Allow this clusterfark to unwind without without the tinkering of the tinkerers who created the whole mess.

    Us little people will eat PBJ sandwhiches and you Mr. Gross will suck it in and take it up the a$$ too but look at the bright side, so maybe you’ll have a lot less money then you had but you’ll still have more then most of the rest of us.

    NO BAILOUTS!

  89. Francois commented on Apr 3

    “I agree with the other commentators that Gross is an idiot.”

    I disagree. It’s worse than that: Gross think WE are idiots to buy in such a stupid proposal.

  90. Francois commented on Apr 3

    “Ultimately government programs which support private credit market assets may be required in order to prevent an asset deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices.”

    Sorry Bill-O! Let me rephrase your statement so we can get this economy going on a more sane long-term basis, even if the interim will hurt aplenty. Ready?

    Ultimately government programs should not support private credit market assets; in order to promote an asset deflation of significant proportions. Authorities must act quickly to stop subsidizing the housing market, hence repealing the homeowner tax deduction, and bring Fannie, Ginnie, Sallie and Silly to the woodshed to be beaten silly. This will provide a much needed shot of adrenalin straight to the heart of the problem: inflated home prices, that, if kept artificially alive, will prevent our kids to afford a home while maintaining a distorted market that no one but self-interested parties need anyway.”

  91. Cherry commented on Apr 3

    It isn’t Socialism for Gross either.

    It is the Capitalist class taking money from the laboring classes or the nations core-wealth infrastructure to bail themselves out.

    This is hardly a new phenom, except at one time the capitalists just took it on the chin. Mises and the Ron Paul’s of the world can’t understand and will not understand because of their rogue internationalism they love(which Paul can’t admit to so he tries to make it up with fluffy statements and poor reasoning that contradicts himself) is the nature of the capitalist is one of the international.

    He has no home or country. He is a creature with no land to call his own except the one he “buys” from the people of a native country. Right now, the capitalists don’t want to take the blame for this mess and they feel they were screwed by the Neo-Cons.

    So they sound willing to deal with inflationary crisis and bond crash to transfer wealth from JSP to themselves.

    Now this will damage the petite bourgeois BADLY. The key is, who do they run to? The Free Market intellectuals? The Social Democrats?

    That is where the next radicalism will spur from. You already see those intellectuals stumping such as Ron Paul or Kucinich in their respective brands.

    The fact is, if you let this market crash, we WILL experience a depression. If you just allow us to have major inflation, a succession of recessions that spread it out over time. Which one will you choose? The Capitalists thus feel they are right.

    Sounds like to me they will go with massive Gov. debts, eventually reaching 1.0-1.5trillion annually. Ouch!!!

  92. Paul Jones commented on Apr 3

    To bring home prices in line with the outstanding debt on them means making everything else much more expensive: inflation. You cannot move from a situation where people are cash strapped and underwater to a situation where they are magically solvent without increasing their end state purchasing power.

    If given the ability to go out and purchase and sufficient media propaganda that “everything’s perfect” (again) people WILL spend.

    It’s our culture. It’s part of our equilibrium in marriage and family. It’s part of our psychological well-being. It (attempts to) supplement for our lack of real religious certainty. And it is our central problem.

    It baffles me that a nation so hellbent on consuming unbolted all the machines from the factory floors and shipped them overseas; it’s as if a meth-head went down to the local UPS store and sent his equipment to Shanghai in exchange for regular shipments of meth!

    All those people spending again will get us past the November election, but it will not get us to anywhere good.

  93. Stuart commented on Apr 3

    “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the [public] bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.” -Andrew Jackson

  94. NOR commented on Apr 3

    It been empirically proven though, that intracardial adrenalin has no benevolent effect..

  95. Darkness commented on Apr 3

    Here here Francois!

    The home mortgage deduction ends up in the pocket of developers anyway in the form of inflated prices. Get rid of it. Middle and upper income homeowners won’t pay any more in the end and the lower middle class can’t deduct enough to take advantage of it anyway.

  96. don commented on Apr 3

    Bill Gross is right about the problem, but his solution is short term and merely postpones the big adjustment that will come when U.S. borrowing ceases, as it someday must. Will we renege on the debt through inflation, or will interest rates climb to high levels? Either way, it will be very painful. I favor taking the medicine now. Too bad the Fed has followed politicians in adopting the short run view.

  97. stan commented on Apr 3

    WTF Bill… prop up housing prices at unaffordable levels? Let the system work out the inane stupidity and greed like it properly should. If it means lower values for a long time, so be it.

  98. foo commented on Apr 3

    Gross is scared. While the stock market crash is the most well known pre-Depression event, the bond market took a bath about a year later (not sure on details).

    He needs a wealth transfer from savers and tax payers to debtors/lenders and he knows it. He doesn’t care how it comes about, and he knows it isn’t about saving the economy. It is about how what is left is divided.

  99. The O-man commented on Apr 3

    Sorry to get off topic, but notice the race of all these “smart” money men? If only 5 of them had been “minorities”, you’d have heard all of the nonsense about reverse discrimination etc. The MSM (fox, NBC, CNN, CBS, MSNBC, etc) all play the same games, carjackings, crack dealers, high school drop-outs. It ain’t about race; money is all that matters. And here I was thinking that I move from a third world banana republic to the bastion of capitalism…someone sure pulled a fast one over on me

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