And here’s a research analyst on Pimco’s other serious conflicts of interest:
Josh Rosner of research firm Graham Fisher is not happy with Pimco’s dual roles as private investor and manager of government bailout programs. “Gross is a deeply conflicted player given undue sway in matters of public interest that are potentially at odds with his positions.”
Pimco also flexed its muscle on the GMAC bailout and came out clean as a whistle:
The case of GMAC also raises questions about Pimco’s power. Last fall GMAC executives applied to make GMAC a bank holding company so that it could access federal funds. Before they would approve the move, federal regulators insisted that 75% of GMAC’s bonds be swapped for equity to shore up the company’s capital base. Offering 60 cents on the dollar, GMAC was able to buy 59% of its bonds. But Pimco, which held a big chunk, refused the deal. The government blinked, allowing GMAC to become a bank holding company in late December even though it hadn’t met the 75% threshold. After the conversion, GMAC bonds rose in value; Pimco says it plans to hold them to maturity.
Look, I like Bill Gross. I think he’s one of the smartest guys around. But nobody should have that kind of power, even as a last resort in this kind of economy. These entities need to be split up or forced to downsize in other ways until they no longer have the financial system and our democratically elected representatives over a barrel. It’s plain as day.
Good for Fortune for taking this story head-on.
fortune magazine
Daily Briefing
By Colin Barr
Daily Briefing
May 21, 2008, 1:45 pm
Greenspan’s ‘brilliance’ pays off for Pimco
Maybe Alan Greenspan hasn’t been totally clueless about the housing bubble after all. Since coming on last year as an adviser, Greenspan has made bond investor Pimco “billions of dollars,” Pimco co-investment chief Bill Gross said. Gross, speaking at a conference in Los Angeles, attributes the gains to Greenspan’s “brilliance in terms of forecasting the potential for exactly what happened” in the past year’s global credit crunch, Bloomberg reports.
Though Pimco has performed well recently, Greenspan’s reputation for brilliant foresight has been eroding since house prices stopped rising back in 2006. Since then, Greenspan has been castigated for failing to crack down on aggressive lending practices while he was chairman of the Federal Reserve, and for keeping interest rates too low earlier this decade as house prices took off. He has responded recently to the effect that the U.S. wasn’t alone in having a housing bubble and that there’s no evidence central bankers would succeed in popping any asset bubbles anyway.
“Regulators, to be effective, have to be forward-looking to anticipate the next financial malfunction,” he wrote in a March opinion piece in the Financial Times. “This has not proved feasible. Regulators confronting real-time uncertainty have rarely, if ever, been able to achieve the level of future clarity required to act pre-emptively.”
In the same piece, Greenspan himself admitted that a fair amount of future clarity had continued to elude him on how the housing bust would play out. “I have been surprised by the fierceness of investors in retrenching from risk since August,” he wrote in March. But not so surprised that he couldn’t offer a few helpful pointers to a client.
#1 Posted by jamzo, CJR on Sun 1 Mar 2009 at 09:50 PM