Posted on 08/27/2007 11:02:48 AM PDT by Hydroshock
Bill Gross, the Pimco bond guru, is like the old E.F. Hutton: When he talks, people listen.
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The question right now is whether his words always match his reputation.
Last week, Gross grabbed the headlines by warning that the housing slump could lead to devastating economic consequences. He argued that a 10% fall in prices nationwide could set off price deflation of a kind not seen since the Great Depression, while waves of mortgage defaults could undermine confidence in the financial system here and abroad.
Gross concluded by urging President Bush to launch an emergency, New Deal-style federal bailout of distressed homeowners to forestall disaster.
For an alternative view, you could talk to a less well-known bond guy, like Tom Atteberry. He's the co-manager of the $1.75 billion First Pacific Advisors New Income (FPNIX) fund. His offices, in Los Angeles, are a short drive from Gross' suite in Newport Beach.
Atteberry certainly doesn't question the depth or scale of the housing slump. He believes the market could keep falling well through next year. He successfully kept his fund clear of risky mortgage-backed paper, and he warns that it is still "too early" to start bargain-hunting.
The history of past crises leads him to believe that that moment may not come until later this fall, some time between October and December.
(Excerpt) Read more at thestreet.com ...
Actually, I did... :)
Are any of the subprime brokers the same ones we bailed out in the Savings and Loan “Crisis?” The subprime people sure learned a good lesson from that bailout: take all the unreasonable risk you want. If you win you get rich and if you lose the government or the bankruptcy court will be there to help you out.
The market needs to experience the downside of risk or the risky behavior will increase. Bailouts only lead to a repeat of the same failure.
bump
Hey, there's a thought! We'll cancel all student loans, car loans and credit card balances. We'll cancel all corporate debt. We'll cancel all government debt.
Whoops! Our fiat currency is based on government debt. We'd have to go back to gold.
I doubt cutting rates would be enough to offset the drop in demand that's been caused by taking sub-prime products off of the table.
Sub-prime zero-down, nodoc, liar loans and their relatives are history. Sub-prime products created demand which inflated prices. Sub-prime products are now GONE and the demand they created has gone with them. The market will have to adjust to these simple economic facts.
Besides, too many criminals still have their snouts buried in the trough and feeding them with lower rates would just make the problem worse.
Want to restore confidence in the mortgage backed securities being peddled on Wall Street?
Start making some arrests and drag the thieves out of the temple.
If I were the SEC, I'd be taking a real hard look at the FICO scores used to value those mortgage backed securities. I'd want to compare the scores returned by the reporting agencies against what was documented on the loans that got securitized.
But hey, that's just me.
I guess I could buy into it if I lived on a secluded compound in the middle of nowhere and lived off the land but since I don’t your ideas frighten me.
And cutting rates isn’t about saving the subprimes it’s about containing the meltdown from the rest of the economy.
[So you advocate...]
I advocate the application of Law and Order that is supposed to differentiate our Republic from an Oligarchy.
[your ideas frighten me.]
Why, have you been falsifying loan docs?
[it’s about containing the meltdown]
For those with decent (and REAL) credit scores, mortgage interest rates are already near historic lows. So, IMHO, any increased demand created by further lowering interest rates would not be sufficient to offset the decrease in demand caused by the vaporization of the sub-prime credit supply.
Lower interest rates or not, the lending guidelines now (well, allegedly, at least) in place will not allow the financing of homes at the current, artificially created, vapor-price-values that exist in many markets. Lenders know the shark has been jumped and prudent buyers do not wish to be eaten by it.
The market is going to have to adjust by lowering prices.
This isn't good news for entities that have been depending on the rollover of credit-card debt via home equity... but reality is what it is.
A good time to simplify the appetites and re-establish those neglected family ties.
Got Family?
Atteberry is right, and Gross is looking for the gov’t to help him out of a bad investment.
“trouble is, state legislators in places like NJ and California are talking about exactly this sort of bailout.”
So is Bush.
Only about 100,000 will be helped. All the others will lose their houses.
Do not believe the mortgage company shills who say 'Lenders lose money on foreclosures.' Historically, lenders make tons of money on foreclosures: All the bogus late fees, surcharges, penalties and bogus attorney fees and costs assessed to home buyers. Lenders make lots of money when foreclosures are filed within the first seven years.
But this may turn out to be the first time in history where lenders will lose money. Inflated home prices are falling all across the U.S. Homes will go for 50% of less of original purchase prices. Mortgage bond holders and lenders will eat the losses. So be it. Serves them right. JMHO.
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