Gross: Bailout of Wall Street Will Help Main Street

What has my attention about this bailout is:

1. What is the payoff time frame? How long will the Trillion be tied up in this effort?

2. Will these crappy mortgages be renegotiable to lower interest rates and better terms?

For me, those are the two keys to the deal.

If Gross wishes to run this as a sort of bond fund, I can't see why not, these are not "bad" mortgages, they are unsellable ones at the moment.

WallStreet just needs something, anything, passed by Congress.

the main problem with the bailout is it reinforces the very problem with the system today, namely that more and more risk is being acrued by Wall Street in the hopes of getting higher returns. If you take away the threat of destruction, there is nothing in the system that prevents Wall Street from loading up on the next risky investment trend once the dust settles. Its ironic, that the greatest proponents of free markets run to government to bail them out rather then letting the market naturally deal with the fallout

I read the Swedish bailout...and I think when this is all said and done...there will be many similarities....

Firstly, Thanks Mods for the new forrum.

Secondly, This is the kind of thread I was hoping to see. Thanks Joey.

That bailout proposal sounds simple enough and could benefit everyone. Is this just Gross's suggestion or is this the actual bail out plan being passed as a bill right now?

"Ludacris wrote:

Firstly, Thanks Mods for the new forrum.

Secondly, This is the kind of thread I was hoping to see. Thanks Joey.

That bailout proposal sounds simple enough and could benefit everyone. Is this just Gross's suggestion or is this the actual bail out plan being passed as a bill right now?

I think right now there is so much confusion with the bail out plan as far as how much it is going to cost the American tax payers, how it will be structured, what is the value if any of all the bad debts that everyone is really confused especially Congress.

This is more of Bill Gross sitting down with his team over several days and going through several different models with estimates on the value of the mortgage backed securities over a broad range and actually coming up with very realistic estimates and then saying wow, they can actually walk away with a profit every year on this deal.

He made a direct point of having his article explaining his model in the Washington Post to make sure it would be read by as many of the Congressional leaders as possible which is who needs a better understanding of the bail out anyway.

"vt_dolfan wrote:

I read the Swedish bailout...and I think when this is all said and done...there will be many similarities....

The one point of the swedish bailout model that I did like even though many would look at it and say that is socialistic and actually yes it is, is the swedish government requiring any of the institutions that sought their relief would have to give up equity in their company.

Notice a few of the largest banks owned by some of the wealthiest families found the funding they needed through private sources to prevent any government ownership of their bank which in turn decreases the amount of the bailout.

Over time the crisis subsided, lending practices went back to normal levels, banks got back on their feet and the government returned a profit to the taxpayers.

That is exactly how the funding for the AIG loan was structured, the treasury took 80% in warrants.

"joeydolfan wrote:

I think right now there is so much confusion with the bail out plan as far as how much it is going to cost the American tax payers, how it will be structured, what is the value if any of all the bad debts that everyone is really confused especially Congress.

This is more of Bill Gross sitting down with his team over several days and going through several different models with estimates on the value of the mortgage backed securities over a broad range and actually coming up with very realistic estimates and then saying wow, they can actually walk away with a profit every year on this deal.

He made a direct point of having his article explaining his model in the Washington Post to make sure it would be read by as many of the Congressional leaders as possible which is who needs a better understanding of the bail out anyway.

Besides Gross's and Sweden's bail out structures, are there any other structures? I guess a mix of the two would be one.

The uncertainty of what the actual structure would be will not bode well for markets. They have to pass something solid.

Basically the bail out would have a very similar structure to the RTC program put in place in the 80s during the savings and loan scandal. The structure is set in place and the funds deposited, the administrators begin the process of negotiating a price to buy the bad debt from lenders and financial institutions, the program sits on the debt until maturity or of it recovers sooner they can sell it off for a higher value than they purchased it.

I am very interested to see if this program will involve equity stakes which would be one of the main differences to the RTC program. We live in very interesting times.

"adamprez2003 wrote:

the main problem with the bailout is it reinforces the very problem with the system today, namely that more and more risk is being acrued by Wall Street in the hopes of getting higher returns. If you take away the threat of destruction, there is nothing in the system that prevents Wall Street from loading up on the next risky investment trend once the dust settles. Its ironic, that the greatest proponents of free markets run to government to bail them out rather then letting the market naturally deal with the fallout

I agree, and it is also top down not bottom up.

If we step back and look at the last two "boom" economies, the 90's Dot.com boom was based on Government Actions, creating the Internet and regulating it's availability to the General Public, and in the 2000's, it was the cheap Mortgages, and you can see the third Government led economy forming now in the guise of Green Power/Environmental consciousness.

Unlike other booms/growth cycles in manufacturing or natural wealth extraction like Gold or Oil or Uranium which have all been closed off now via Environmental Regulations.

Basically the Government is creating one way pipelines, they only allow growth to occur in areas that they are in control of.

"padre31 wrote:

I agree, and it is also top down not bottom up.

If we step back and look at the last two "boom" economies, the 90's Dot.com boom was based on Government Actions, creating the Internet and regulating it's availability to the General Public, and in the 2000's, it was the cheap Mortgages, and you can see the third Government led economy forming now in the guise of Green Power/Environmental consciousness.

Unlike other booms/growth cycles in manufacturing or natural wealth extraction like Gold or Oil or Uranium which have all been closed off now via Environmental Regulations.

Basically the Government is creating one way pipelines, they only allow growth to occur in areas that they are in control of.

I could go on for days about the unmitigating disasters our government has foisted on us. The Savings and Loans debacles, the monetary foulups that caused the great depression, the regulatory hurdles that shut down nuclear reactors and oil refineries being built in America that lead to higher gas prices. Government causes more problems than it solves due to the law of unintented consequences. I will give the politicians the benefit of the doubt that they are acting in what they believe is the best interest of the people but their actions cause more hardships for the people than if they did nothing.

There's a very interesting opinion article in the WSJ today that probably best fits in this thread.

The Paulson Plan
Will Make Money
For Taxpayers

My analysis suggests that Treasury Secretary Henry Paulson (a former investment banker, no less, not a trader) may pull off the mother of all trades, which could net a trillion dollars and maybe as much as $2.2 trillion -- yes, with a "t" -- for the United States Treasury.
-
Taxpayers will get their money back on AIG. My models suggest that Fannie and Freddie, on the other hand, are a gold mine. For $2 billion in cash up front and some $200 billion in loan guarantees so far, the U.S. government now controls $5.4 trillion in mortgages and mortgage guarantees.
-
Now Mr. Paulson is pitching Congress for $700 billion or more to buy distressed loans and CDOs from the rest of Wall Street, injecting needed cash onto balance sheets so that normal loans for economic activity can be restored. The trick is what price he will pay. Better mortgages and CDOs are selling for 70 cents on the dollar. But many are seriously distressed (15-25 cents on the dollar) because they are the last to be paid in foreclosures. These are what Wall Street wants to unload the quickest.

Firms will haggle, but eventually cave -- they need the cash. I am figuring Mr. Paulson could wind up buying more than $2 trillion in notional value loans and home equity and CDOs for his $700 billion.
-
You can slice the numbers a lot of different ways. My calculations, which assume 50% impairment on subprime loans, suggest it is possible, all in, for this portfolio to generate between $1 trillion and $2.2 trillion -- the greatest trade ever. Every hedge-fund manager will be jealous. Mr. Buffett is buying a small piece of the trade via his Goldman Sachs investment.

Over 10 years this could change the budget scenario in D.C., which can also strengthen the dollar. The next president gets a heck of a windfall. In the spirit of Secretary of State William Seward's purchase of Alaska for $7 million in 1867, this week may be remembered as Paulson's Folly.

The Paulson Plan Will Make Money For Taxpayers - WSJ.com

"finswin56 wrote:

There's a very interesting opinion article in the WSJ today that probably best fits in this thread.

The Paulson Plan
Will Make Money
For Taxpayers

The Paulson Plan Will Make Money For Taxpayers - WSJ.com

I posted a similar piece by Bill Gross the bond fund manager from Pimco and his realization that this bail out will actually make the Government money. There are 2 very real problems that main street is having with the entire bail out scenario.

1. The Government will now own an extremely large portion of the Mortgage market in the U.S. I don't know about you guys but this scares the hell out of me especially being a free market capitalist. It also raises serious questions on us becoming a totally socialistic society.

2. The bail out would have been avoided years ago if Congress would not have relaxed the lending standards to get more Americans (too many that have no money or business owning a home) into their own home. In short, the mess was government created which put some very good companies out of business, now the government benefits from the rescue.

Some really scary issues happening here when you think about it.

"joeydolfan wrote:

I posted a similar piece by Bill Gross the bond fund manager from Pimco and his realization that this bail out will actually make the Government money. There are 2 very real problems that main street is having with the entire bail out scenario.

1. The Government will now own an extremely large portion of the Mortgage market in the U.S. I don't know about you guys but this scares the hell out of me especially being a free market capitalist. It also raises serious questions on us becoming a totally socialistic society.

2. The bail out would have been avoided years ago if Congress would not have relaxed the lending standards to get more Americans (too many that have no money or business owning a home) into their own home. In short, the mess was government created which put some very good companies out of business, now the government benefits from the rescue.

Some really scary issues happening here when you think about it.

It looks like Paulson's plan is like as Gross said plus some equity involved.

I don't have the same concerns. I think it's a short term injection to sure up balance sheets. New legislation will be passed to fixed your second concern and tighten up lending practices. Banks will start their long journey back to business starting from scratch again and the Government will eventually sell back equity to banks when the industry gets back on their feet. They'll make money on it too. I don't think the Government wants a socialistic financial system for long.

"adamprez2003 wrote:

the main problem with the bailout is it reinforces the very problem with the system today, namely that more and more risk is being acrued by Wall Street in the hopes of getting higher returns. If you take away the threat of destruction, there is nothing in the system that prevents Wall Street from loading up on the next risky investment trend once the dust settles. Its ironic, that the greatest proponents of free markets run to government to bail them out rather then letting the market naturally deal with the fallout

this is my EXACT problem with it. if we continually bail out those that screw up, there will be no deterrent to taking risk in the future. "oh, the fed will bail us out." i hate that mentality.

The investment banks? let them fail & go under. I understand they've been around for over 100 years, but if you're going to have a 40 to 1 leverage portfolio, you deserve to fail for being so cavalier with your books.

I think we do need SOME sort of bailout, but i'm not a fan of how they are packaging it and a lot of the extras thrown in. i think sometimes bailouts ARE warranted (see: AIG), other times, not so much.

"adamprez2003 wrote:

I could go on for days about the unmitigating disasters our government has foisted on us. The Savings and Loans debacles, the monetary foulups that caused the great depression, the regulatory hurdles that shut down nuclear reactors and oil refineries being built in America that lead to higher gas prices. Government causes more problems than it solves due to the law of unintented consequences. I will give the politicians the benefit of the doubt that they are acting in what they believe is the best interest of the people but their actions cause more hardships for the people than if they did nothing.

you can't fault the government for all of that. the mortgage meltdown was the fault of the lenders, the investment bank meltdown was the fault of the investment banks.

the only role the SEC had played in the investment bank meltdown is when they allowed the banks to increase their leverage.

It was the fault of the lenders to a certain extent but it was the Fed and Congress led by Barney Frank Christopher Dodd, Alan Greenspan who allowed the Lenders to lend on these unscrupulous terms because "not enough people" could qualify for a mortgage//. It's like puting a cookie in the hands of a 2 year old and telling him not to eat it. Of course he's gonna eat it, of course the lenders will lend.

*cough* *cough*

Pimco’s star bond manager Bill Gross has offered a bearish view on Treasurys in his latest market commentary and remarks to the media. And according to a report on ZeroHedge.com, he acted on this bearishness in January, selling all of the Treasury holdings in Pimco’s Total Return Fund, the world’s largest mutual fund.

Pimco officials weren’t immediately available for comment. Zero Hedge didn’t say how it got the figures for holdings as of February.

“Based on still to be publicly reported data …, the world's largest bond fund, in the month of January, has taken its (U.S. government) bond holdings to zero,” the ZeroHedge report states.

“The offset, not surprisingly, is cash. After sporting $28.6 billion in ‘government related’ securities, TRF (Total Return Fund) dropped to $0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion, based on total TRF holdings of $236.9 billion as of February 28.”

That represents the fund’s highest cash total ever and its first zero position in Treasurys since January 2009, according to ZeroHedge. It says Pimco’s Treasury holdings peaked in June 2010 at $147.4 billion and have dropped steadily afterward. Gross had cut the holdings to 12 percent of assets in January, according to the Newport Beach, Calif.-based company’s website

http://www.moneynews.com/StreetTalk/bill-gross-pimco-us/2011/03/09/id/388891

Pimco sells off all US Treasury holdings earlier this yr

Uhm, yeah, this one turned out real well, buy and hold is a relic, now it is buy, and dump.