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Gross: Bailout of Wall Street Will Help Main Street

Discussion in 'Economics and Financials' started by joeydolfan, Sep 24, 2008.

  1. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    The Treasury’s bailout plan for Wall Street will also benefit Main Street, Bill Gross, founder and chief investment officer of investment management firm Pimco, told CNBC Wednesday.

    Gross also said that Pimco would work for no fee to help manage mortgages and assets bought by the federal government under the bailout “if [other firms] worked on the same basis.”

    Wall Street Bailout: Gross Says Bailout of Wall Street Will Help Main Street - Economy * US * News * Story - CNBC.com

    For anyone unfamiliar with Bill Gross, he runs the Pimco family of bond funds which is the 2nd largest bond fund in the U.S. and is one of the highest respected authorities on anything related to fixed income and debt securities.

    He makes some very valid points in the video on how the bail out plan will benefit Main Street and also Wall Street.

    Also keep in mind the way the bail out could be structured is almost identical to how Sweden solved their banking financial crisis back in 1992 which Congress really needs to consider.

    For anyone interested in some financial history the swedish bail out is laid out pretty well in the article below.

    Stopping a Financial Crisis, the Swedish Way - Companies * US * News * Story - CNBC.com
     
  2. padre31

    padre31 Premium Member Luxury Box

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    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.
     
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  3. BigDogsHunt

    BigDogsHunt Enough talk...prove it!

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    WallStreet just needs something, anything, passed by Congress.
     
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  4. adamprez2003

    adamprez2003 Senior Member

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    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
     
  5. vt_dolfan

    vt_dolfan Season Ticket Holder Club Member

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

    Ludacris Season Ticket Holder Club Member

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    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?
     
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  7. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    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.
     
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  8. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    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.
     
  9. Ludacris

    Ludacris Season Ticket Holder Club Member

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    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.
     
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  10. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    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.
     
  11. padre31

    padre31 Premium Member Luxury Box

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    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.
     
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  12. adamprez2003

    adamprez2003 Senior Member

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    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.
     
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  13. finswin56

    finswin56 Get a mop

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    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
     
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  14. joeydolfan

    joeydolfan Season Ticket Holder Club Member

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    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.
     
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  15. Ludacris

    Ludacris Season Ticket Holder Club Member

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    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.
     
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  16. texasPHINSfan

    texasPHINSfan New Member

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    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.
     
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  17. texasPHINSfan

    texasPHINSfan New Member

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    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.
     
  18. FiN.in.RI

    FiN.in.RI Paul pierced through..

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    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.
     
  19. padre31

    padre31 Premium Member Luxury Box

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    *cough* *cough*


    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.
     

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