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 . . .


Treasury’s Got Bill Gross on Speed Dial
NYT, June 20, 2009

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