Bailout Ballet: New York Times Reports on Hank Paulson/Pimco's Bill Gross Pas de Deux

Talk about setting the fox in the hen house, the New York Times outdid itself today ("For Hire: Bailout Advisor," 09.25.08) in puffing Bill Gross's frightening offer to become the bailout adviser to the Treasury. "And I'd even be willing to say if the Treasury wanted to use our help, it would come, you know, free and clear." And why not -- the last time the Treasury took his advice, which was endlessly proffered on CNBC, Mr. Gross and his Pacific Investment Management Company (Pimco), the country's largest bond mutual fund, hit the jackpot with a $1.7 billion payday piggybacking the Treasury's and taxpayer's bailout of Fannie Mae and Freddie Mac last month.

According to Gross he was not out of line in recommending and pushing for a bailout from which Pimco would benefit outrageously because "Pimco had no official role in formulating the plan...we want safe agency guaranteed mortgages. We don't want to take a lot of risk in subprime space." Huh?? Since when in recent memory, and until the bailout, was Fannie Mae and Freddie Mac paper not "subprime space." What's going on here?

Well, later in the Times' article it was reported that Mr. Gross regularly talks to Mr. Paulson. Could one conjecture that Mr. Gross's persuasiveness goes beyond appearances on CNBC and as far as Mr. Paulson's ear? Certainly the redemption of all classes of Fannie Mae and Freddie Mac bonds at full value is highly peculiar given that some $110 Billion in Lehman Bonds are now trading at 18 cents on the dollar according to the Financial Times (Sept. 23).

As reported in the Times, Mr. Gross further argues against measures that would restrict executive compensation, a position that Mr. Paulson shared with Mr. Gross until Mr. Paulson was made to understand it was a non-starter in Congress. Of course there was no mention of Mr.Gross' relationships with all those executives whose compensation might be restricted.

The article goes on to state that Mr. Gross, in his beneficence, argues that "foreign banks should be allowed to take part in the program." The initial outlines of the bailout program specifically excluded foreign banks and their American affiliates. The ink was barely dry on the initial bailout outline when pressure was brought to bear to amend it, striking that exemption (please see "The Bailout: The Bond Billionaires Piggybacking The American Taxpayer For Another Gilded Ride," 09.24.08). Perhaps one could imagine that there might have been another one of those Gross-Paulson telephone calls wherein Mr. Paulson was reminded that Pimco is an affiliate of Allianz, the large German insurer headquartered in Munich.

On January 28 of this year I posted "Citicorp's Self Immolation and the Beginning of the Eclipse of American Style Capitalism" that it was long past time that crony capitalism in this country be ended. That "Foreclosures, lost jobs and lost futures, for the middle class and the underpowered can no longer be tolerated while the corporate bigwigs dance off richer then ever before. It is a sign that American capitalism has grown rotten at the core. The capitalist impulse, the kind that made a Bill Gates possible, that nurtured his exemplary vision, making him rich and all of us as a society richer, is under attack by vested and influential interests that have stacked the game to such one sided advantage, that it is on the verge of losing all credibility and crushing our confidence in a system that was a meritocracy and a beacon unto others. It is obscene, and a healthy society cannot permit it to continue."

Comments

[billyfitz]

These fat cat bankers messed up. Now they need to shut up. If the taxpayers are going to assume $1trillion more in debt, it should go to helping hard working American families that need help.

NO BAILOUT!

[schatsie]

Read STIGLITZ on 'The Nations's' website, this man should be in Washington, breathing down the necks of Congress..­.

There is a reason that the Administration held back on releasing the Plan until right before the election..­.It could not be done months ago because then there would have been rioting in the streets in the summer..

DO NOT BAIL OUT THE "ROYAL BANK OF SCOTLAND'

[fisharefreinds]

I forgot the name of this guy, but he worked with George Soros, made a bundle and then took off on a motrcycle with his wife around the world. Later he settled in NYC and started his own fund--you need a million to get in--& lived in a brownstone on Riverside which he recently sold. He is teaching his daughter Chinese and is heavily invested in precious metals. He said the US was over and moved to Singapore last year or so--was gonna go to Beijing but hated the pollution. Should we all get on boats and planes and head for the hills or Asia too?

[fisharefreinds]

We (the US) are seemingly being striped of assets and completely undermined on a purposeful level.

[LOL123]

That's one of the best articles I've read in a long time. It's absolutely true the fox is in the henhouse with many more than Bill Gross. Lets add the name of Alan Greenspan (EX-Ceo of Jp morgan), Maurice R. Greenberg (lots of Greens in there) and Paulson (connected to Goldman Sachs), Bush to oil and the list goes on. This is all ok because we all have history but the point of moral bankruptcy has taken place in Washington to where this is the norm instead of playing by ethic rules our students learn in finance, government classes. The world can no longer look to the US as anything other than what our middle eastern enemies call us....capi­talist prostitutes. Of course they are just as hypocritical as we are.......­the LOVE of money is the root to all evil...not the money itself.

[mnkors]

People with big money do not have motherland. They belong to the Country of Rich. The oligarch looked with satisfaction when Mr Bush was kissing and holding hands with Saudis princes, the main sponsors of Laden and his followers (whose only sin was to protect THEIR motherland from the greedy international oil men). Rothchilds and Rockfellers and Kristols have more heart warmth for Israel than for the US A. Cheneys and Bushes do not care for anybody, al all.
Development of the alternative energy would be a natural choice in a normal capitalist society but not in the origarchic society of the US. The plot was simple: give subsidies to and do not tax oil companies. This made the alternatove energy industry absoliutely uncompetitive. The oilmen smothered the US future. But again, they do not have a motherland.

[funkalicious]

Yesterday Jim Cramer is telling his audience of chum to up the FDIC from 100,000 to 2,000,000.
We are also led to believe that rapacious capitalism is the only cure for rapacious capitalism in Cramerica.
But what is happening now is a devolution through unbalanced regulation­.. ie a mandate to write sub prime loans to push home ownership into poorer communities and the failure to regulate the CDO,CDS, MBS boys who put America in bondage and chains.

Gross Certainly knows what the score is as we saw when he was wetting his pants as his boyos tipped Freddie and Fannie into the dust bin.
The Failure in my opinion was not taking the GSE's into receivership and busting them up and forcing the bankruptcy up front. they are bankrupt and allowing the government a vehicle to gift insiders with the tasty bits..like Wamus Banks and Deposits and providing them a window to sell all of their toxic crap for the tax payer to hold. Will America make out it took over thirty years for the mortgage buy backs form the '30's to pay off.
We are looking at a fifty year cycle. in the 30's it was the ten year mortgage. Today we get 30 years.

Sure we can wave pirates on to the ship but we will be faced with a country that is moving toward an Oligarchy not the egalitarian ideals that our nation was founded upon.

T

[noneIn2008]

Post the bill and all details on the web, now. Let the people see all the special deals you looters in Congress (Dem and Rep) are cutting on the side. $5 million to study crows feet in North Dakota? You know the people will revolt if they see the details in advance.

[NicoleAnon]

I doubt Paulson will allow anyone near him who isn't from Goldman Sachs - his top people at the treasury are from GS and he has already brought others in as "advisors" and now he is bringing more. And Blankfein, CEO of GS, met with congress this week to "advise" them about the bailout.

"Hank Paulson, Treasury secretary, has called on Edward Forst, a former senior Goldman Sachs executive who recently joined Harvard University, to be a key adviser on the $700bn financial rescue plan, it emerged on Friday.

Mr Forst joined Mr Paulson"s team less than a week ago and has been working on the structuring and implementation of the "troubled assets relief programme" if it is approved by Congress, a Treasury official said. "

[larry278]

With the exceptions of the FINANCIAL TIMES & the old WSJ, what's called financial journalism is puffery. The NYT may stave off its eventual demise if the enterprises, etc the NYT puffs buys ads.

[Charley2u]

Thank you sir for a very good article. I had not thought anyone marked Pimco's windfall with the GSE take over. Yours is the first I have seen it mentioned. And, you have added much to my understanding.

[joebaggadonuts]

Agreed. I became his fan today.

[Jeff8462]

I'm sure that its the greedy old white Republican's fault that all this has happened, of course the Democrats were asleep at the wheel for the past few years. the CEO and shareholders of these greedy corporations were of every political persuasion and this insanity has to stop

The only reason this blank check for the bailout is being considered is because of pressure from countries like China that stand to lose, politicians that have a share holders stake and greedy companies. You know maybe we should not have credit to buy what we can't afford and bite the bullet. I guarantee you that products would come down in price and our imports would stop, jobs would come back to the US OF A!

[schatsie]

I agree with you totally, when you consider how many trillions of dollars have gone to the OIL countries and China/Walmart in the last 6 years, it is just disgusting­... The slickest thing though was the devaluation of the dollar, and I think that has really riled up the foreigners­..

Yes, I agree that we should be cutting back on oil... When you figure that Wind and Solar are replacing 20% of the energy outputs in Europe from the oil countries, we should all sit back and notice.... And that China is making CHEAP solar panels is very interesting,,, When will they show up at Walmart or are they being kept out on purpose???

We need to get with the 21st century instead of looking backwards.­. AND forget the bailout, the Wizards of Wall Street got us in this mess and the Rich who took 1 trillion dollars out of the US Treasury in the last 8 years, should cough up and shut up!!!!

[joebaggadonuts]

It wasn't just D's asleep at the wheel, my friend. You did nothing to stop this either.