ajtj99's Market Pulse

[sylvester80]

THIS IS A DISGRACE & DISGUSTING TO EVEN READ!!!!

Who do the tax payers bail out next??? All the losers on the stock market bubble???? Is this a free market economy or what???

50% of all resale homes in Vegas are UNOCCUPIED!!!! What homeowners is Mr. Gross talking about??? The speculators, the liars, the fraudsters, the criminals??? They belong in jail not in a bailout. The reason why this mess exists is because home prices are SKY HIGH AND UNAFFORDABLE on current salaries!!!! Foreclosures are the means to drive prices down so that the free market can do what it does best. And that is to make homes a value proposition again so people can afford them and would go and buy them.

Pimco's Gross Urges Bush to Bail Out U.S. Homeowners (Update3)

By Patricia Kuo
http://www.bloomberg.com/apps/news?pid=20601087&sid=amVRExsd80cA&refer=home

Aug. 23 (Bloomberg) -- Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., urged the Bush administration, rather than the Federal Reserve, to bail out U.S. homeowners to avoid ``destructive housing deflation.''

``Fiscal, not monetary policy should be the preferred remedy,'' said Gross, who manages the $103 billion Pimco Total Return Fund. ``This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hard working Americans whose recent hours have become ones of frantic desperation.''

Fed interest-rate cuts won't lighten the extra mortgage payments for homeowners as lenders may not follow with cheaper rates, he said. Lower Fed rates would likely weaken the dollar, Gross wrote in his monthly commentary on Pimco's Web site. The unexpected 0.5 percentage point cut last week on the rate the Fed charges banks and the addition of cash to ease access to capital may provide short-term relief to markets, he said.

The Fed left its benchmark overnight interest rate at 5.25 percent at its last meeting Aug. 7.

``The fed funds rate at 5 1/4 percent is restrictive,'' Gross said the same day. ``The economy is slowing. They're going to have to'' cut rates in the next several months. He also said his firm has been buying high-yield assets.

Gross has been predicting for about a year that the Fed will lower rates in 2007. As of June 30, Gross had most of his fund's cash in securities maturing in one year to three years. Such bets benefit more from rate cuts than longer-maturity debt.

Home Foreclosures

U.S. homes facing foreclosure almost doubled in July to 179,599 notices as property owners with adjustable-rate mortgages saw payments rise and were unable to refinance because of the subprime crisis, RealtyTrac Inc. said. Analysts expect defaults to rise to more than 2 million, which would likely dent housing prices by 10 percent, Gross wrote.

There are precedents from previous crises in the 1990s, Gross said. The U.S. government created the Resolution Trust Corp. to rescue the insolvent savings and loan industry and the Fed organized a bailout to prevent billions in losses from rippling through Wall Street after the collapse of Long-Term Capital Management LP hedge fund in 1998.

``Why is it possible to rescue corrupt S&L buccaneers in the early 1990s and provide guidance to levered Wall Street investment bankers during the 1998 LTCM crisis, yet throw 2 million homeowners to the wolves in 2007?'' Gross wrote. ``If we can bail out Chrysler, why can't we support the American homeowners?''

Gross advised President George W. Bush to set up a ``Reconstruction Mortgage Corporation'' and ``write some checks'' to bail out homeowners.

`Additional Avenues'

The U.S. government can also make adjustments to the existing Federal Housing Administration's program, which long ago was ``discarded as ineffective,'' said Gross. The FHA insures loans made to lower-income homebuyers. U.S. Senate Banking Committee Chairman Christopher Dodd plans to move legislation next month that would expand the role of FHA to ``provide additional avenues for people to get cheaper, reasonable, safer credit'' without relying on subprime loans, he said in an interview with CNBC.

Lehman Brothers Holdings Inc., the biggest U.S. underwriter of mortgage-backed securities, expects the Fed to lower the federal funds rate by between 50 and 75 basis points from the current 5.25 percent by the end of March.

Traders see a 58 percent chance the Fed will cut its target for overnight bank lending by half a percentage point to 4.75 percent at its next meeting Sept. 18, based on futures contracts.

No Automatic Adjustments

``Even cuts of 200-300 basis points by the Fed would not avert a built-in upward adjustment of adjustable-rate-mortgage interest rates,'' Gross said. ``Nor would it guarantee that the private mortgage market, flush with fears of depreciating collateral, would follow the Fed down in terms of 15-30 year mortgage yields and relaxed lending standards.''

If U.S. home prices fall by 10 percent, it would be the worst asset deflation in the U.S. since the Great Depression, according to Gross.

``Now many of those that bought homes in 2005-2007 stand a good chance of resembling passengers on the Poseidon -- upside down with negative equity,'' he said. Seventy percent of American households own homes.

As no one really knows where the defaulting mortgages will arise and how many rest in institutional portfolios, the investments can hibernate for many months before investors get to find its true value, Gross said.

`Trust Breaks Down'

``When no one knows where and how many Waldos there are, the trust breaks down, and money is figuratively stuffed in Wall Street and London mattresses as opposed to extended into the increasingly desperate hands of hedge funds and similarly levered financial conduits,'' he wrote.

Newport Beach, California-based Pimco, which oversees about $687 billion, is a unit of Munich-based insurer Allianz SE.

Almost half of all collateralized debt obligations sold in the U.S. in 2006 contained subprime debt, according to a March report by Moody's Investors Service. CDOs are packages of bonds and loans.

``The inherent leverage that accompanies derivative creation may foster systemic risk when information is unavailable or delayed in its release,'' said Gross. ``Nothing within the current marketplace allows for the hedging of liquidity risk and that's the problem at the moment.''

To contact the reporter for this story: Patricia Kuo in Hong Kong at [e-mail]

Last Updated: August 23, 2007 10:20 EDT