Tuesday, October 21, 2008

Bill Gross on the financial crisis

Morningstar recently asked bond king Bill Gross about his thoughts on the financial crisis:
Gross was encouraged that the passage of the Treasury Department's proposed $700 billion Troubled Asset Relief Program would pay off in a few ways. In particular, he was and remains confident that the acquisition of troubled mortgages by the United States government will ultimately produce profits for Uncle Sam. As long as the government picks them up at the right price—and there's a lot of room for error given how cheaply subprime mortgages are currently being marked—returns of 10% or more are well within the range of possibility according to his analysis.

But the main reason for his advocacy of the plan is that he believes it will be critical to avoiding the catastrophic outcomes of inaction that would have included massive job losses, plummeting economic productivity, and waves of bankruptcies. In fact, in the absence of an effective government policy response, Gross has described a "daisy chain" of trouble snowballing from margin calls, disappearing leverage, and institutional failures that would roll through the financial, housing, commercial real-estate, stock and bond markets. Meanwhile, he also sees the TARP as a catalyst that will put banks in a better position to make loans. ...

With the specter of such massive government spending on the horizon, though, we pressed Gross for more thoughts on the future. ... The U.S. has been living on the creation of more and more debt for some time, activity that can cheapen the value of our currency versus those of more fiscally restrained nations, notes Gross. Unless something changes, he argues that we can't expect the U.S. dollar to maintain long-term strength, a point that he and PIMCO have been making for many years.


  1. Greenspans quote:

    "Well, it's true that monetary policy was expansive. But there was nothing that a central bank could do in those circumstances."
    ....Trying to claim the Federal Reserve and the Fed Chairman were powerless is the most feeble excuse I have ever heard from Greenslime.

    "The market would have been very much displeased, if the Fed had tightened and crushed the boom."

    Was it not and is it not the job of the Federal Reserve to protect the dollar and fight inflation?
    Kissing the backside of the market is NOT part of the job of the Federal Reserve.

    Greenspan blames anyone and everyone but himself for this mess, history will not be kind to his memory no matter how many books he writes or quotes he spouts to the press.

  2. I'm selling parcels of the lunar surface. Lots within the Sea of Tranquility will soon be worth more than established neighborhoods in Arlington. At that point, my good friend and mentor (we're in the same industry, after all) Sizzle Lien will swoop in and establish his personal empire south of the Potomac.

  3. If Greenspan had any honor then he would jump out of the highest window of a New York City skyscraper.

  4. Lol Lien Armstrong! You are a true patriot and american hero. I shall remember your efforts as my armies ride into N. Arlington and establish my thousand year empire.

    Please join me, Lien Diamond and Lien Sedaka at the upcoming Arlington Meltdown! I shall reward you handsomely with 10 worthless Arlington houses of your choosing!

    Got Bacon?