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Gross calls on Bush to bail out homeowners

Gross calls on Bush to bail out homeowners
Bill Gross, the influential bond manager, says it's up to the Bush administration rather than the Federal Reserve to help homeowners stung by the meltdown in the subprime-mortgage market. "Fiscal, not monetary policy should be the preferred remedy," Gross wrote in his investment outlook. "Why is it possible to rescue corrupt S&L [savings and loan] buccaneers in the early 1990s and provide guidance to levered Wall Street investment bankers during the 1998 Long Term Capital Management crisis, yet throw 2,000,000 homeowners to the wolves in 2007?"

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Gross demands US government action over sub-prime fallout
Lisa Haines
23 Aug 2007
 
An influential bond manager has called for the Bush administration to bail out US homeowners hit by the sub-prime mortgage fallout, rather than the Federal Reserve.

Bill Gross, chief investment officer of fund manager Pimco, wrote in his monthly investment outlook that the Fed could probably support house prices by making a substantial cut to short-term interest rates.

However, he warned that a cut of such magnitude, which he put between 200 to 300 basis points, would almost guarantee a resurgence of speculative investment via "hedge funds and levered [sic] conduits, which have proved to be the Achilles heel of the current crisis”.

Gross said: “The ultimate solution, it seems to me, must not emanate from the bowels of Fed headquarters on Constitution Avenue, but from the West Wing of 1600 Pennsylvania Avenue. Fiscal, not monetary policy should be the preferred remedy.

“Why is it possible to rescue corrupt S&L [savings and loan] buccaneers in the early 1990s and provide guidance to levered Wall Street investment bankers during the 1998 Long Term Capital Management crisis, yet throw 2,000,000 homeowners to the wolves in 2007?”

Gross cited projections that there will be more than two million defaults before the current cycle is complete, knocking 10% off housing prices. This would create an asset deflation in the US never seen since the Great Depression, he said.

As an aside, he added it would also be a way for republicans to get one up on the democrats by winning a new constituency of voters, the “almost homeless homeowners”, for generations to come.

“Get with it Mr. President and Mr. Treasury Secretary… Write some checks, bail ‘em out, prevent a destructive housing deflation that Ben Bernanke is unable to do.”

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