U.S. Must Buy Assets to Prevent `Tsunami,’ Bill Gross of Pimco

September 4, 2008 by · Leave a Comment
Filed under: Industry News 

Well I have read many pieces of news but I have not seen one so blatantly calling for corporate welfare as this one and because the amount of pull Bill Gross has with a certain crowd I would not be surprised to see this happen. I want to pull the quote that really takes the cake for contradicting it self if you actually break it down. “The government needs to replace private investors who either don’t have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. “. My question is if we have a supposed “Free Market” then what is the governments role?

Article:

The U.S. government needs to start using more of its money to support markets to stem a burgeoning “financial tsunami,” according to Bill Gross, manager of the world’s biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm’s Web site today.

“Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,” Gross said. “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 needs to replace private investors who either don’t have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world’s biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.

Since financial markets seized up a year ago as the subprime-mortgage market collapsed, the Standard & Poor’s 500 Index has fallen 13 percent and home prices are down more than 15 percent. Yields on investment-grade corporate bonds, debt backed by commercial mortgages as well as credit cards reached record highs last month relative to benchmark rates.

`Mom and Pop’

Gross cast a bleaker view for the prospects of the world’s financial markets than in previous notes to clients. The fund manager has previously called on lawmakers to support housing with legislation passed in July that allows lenders to forgive some of homeowners’ debt and then refinance them into government-insured loans.

Pimco, a unit of Munich-based Allianz SE, is seeking to take advantage of declines in home-loan bonds. The firm is raising as much as $5 billion to buy mortgage-backed debt that has plunged in value, according to two investors with knowledge of the matter. The Distressed Senior Credit Opportunities Fund will invest in securities backed by commercial and residential mortgages, said the people, who asked not to be identified because the fund is private.

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