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