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

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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."