Bloomberg on Bill Gross

http://www.futureofcapitalism.com/2010/06/bloomberg-on-bill-gross

Here's how Bloomberg News handles a piece of a long article today on Bill Gross and Pimco:

Gross saw the mortgage debacle coming and was able to dodge most of the damage -- thanks partly to yoga.

In 2005, he suspected a housing bubble had formed. During a yoga session, it occurred to him to send analysts posing as homebuyers into the field to test his theory. The research helped him decide as early as 2005 to avoid subprime-mortgage- backed securities.

Yikes. What saved Bill Gross during the mortgage/financial crisis wasn't yoga but a decision by Henry Paulson and President Bush to seize Fannie Mae and Freddie Mac, basically wiping out the equity holders but keeping the bondholders, who included Mr. Gross's Pimco as well as a lot of foreign governments, including China, totally whole, at a huge cost to American taxpayers. Asked, before the Financial Crisis Inquiry Commission, why Pimco held all that Fannie and Freddie debt if it saw a housing crisis coming, a Pimco official said, "We fully expected that our government, if push comes to shove, would wrap its arms around Fannie and Freddie. And that's precisely what happened."

Here's how the New York Times put it:

Pimco was a direct beneficiary of the Treasury Department's actions. In 2008, when it appeared that Fannie Mae and Freddie Mac might fail, Mr. Gross saw an opportunity. He moved Pimco's flagship Total Return Fund heavily into mortgage-backed securities guaranteed by the two agencies. Then he vociferously advocated for the government to rescue them during television appearances on CNBC and elsewhere. On Sept. 7, 2008, the fund's value soared by $1.7 billion when Mr. Paulson announced the government takeover of Fannie Mae and Freddie Mac.

Bloomberg can credit "yoga" and "research" by analysts posing as homebuyers all it wants, but this guy is a huge beneficiary of the government's decision to seize a private company from its shareholders and spend taxpayer funds to support the bondholders.

The author of the article, Seth Lubove, wrote a nice article about me for Forbes a decade or so ago, which I appreciated at the time and still do. This article, though, was one that could have used a little more skepticism.

by Ira Stoll  |  Jun 24, 2010 at 9:17 am Related Topics:  Bill Gross, Fannie Mae, Henry Paulson, Housing, Press receive the latest by email: subscribe to the free futureofcapitalism.com mailing list