Pimco's Bill Gross calls for a backstop

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

I can appreciate what Bill Gross is calling for on the surface. The credit markets are freezing up and somehow liquidity must be restored for our capital markets to function properly. But that's not what Bill Gross is asking for. He is really asking the Treasury(the US taxpayer) to bail out investments he made in Mortgage Backed Securities.

His comments about the private market unwilling to commit its own capital, while true, is a smoke screen. He is using the obvious market shortcomings as a veil to hide behind.

``There is an increasing reluctance on the part of the private market to risk any more of its own capital,'' Gross said. ``Liquidity is drying up; risk appetites are anorexic; asset prices, despite a temporarily resurgent stock market, are mainly going down; now even oil and commodity prices are drowning.''

A quick glance at Pimco's holdings brings light to the situation Bill Gross finds himself in.

About 61 percent of the holdings of Gross's Pimco Total Return Fund were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or Ginnie Mae, according to data on Pimco's Web site.

He is concerned about the spreads on those securities widening. That would become a large problem very quickly. His funds balance sheet would come under severe pressure. What Bill Gross is banking on is for you and I to pick up the tab and narrow those spreads.

Treasury should support not only mortgage finance providers Fannie Mae and Freddie Mac, but also ``Mom and Pop on Main Street U.S.A.,'' by subsidizing rates on home loans guaranteed by the Federal Housing Administration and other government institutions, Gross said.

It doesn't stop their -

Unless ``new balance sheets'' emerge, prices of almost all assets will drop, even those of ``impeccable'' quality, he said.

He is calling for the Treasury to step so "new balance sheets" can emerge at which time Pimco has raised $5 Billion to invest. That's right, he has capital available now to invest but is not willing to unless you and I take all the bad debt.

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.

That's Capitalism