Money managers frequently take advantage of press time to talk their book, but more often than not, these people offer cohesive explanations for their stances. Nevertheless, the audience must still hack through the occasional attempt to beguile, particularly given the ingenuous approach to such interviews. One can therefore understand my contempt when I saw BusinessWeek report that Bill Gross wants full nationalization of the home financing market.
Mr. Gross seems to believe our nation will continue to suffer a series of housing crises unless the government takes full control of the mortgage market. Now, Bill Gross is a shrewd businessman, so it hardly seems plausible that he truly believes the government can run financing operations better than private enterprise. Under government control, the political temptation to make less-than-creditworthy loans to millions of financially unqualified voters would be too great to resist. A fully nationalized home finance market would surely bankrupt our country more quickly than anyone ever dreamed social security could do.
Furthermore, is it not obvious that the current housing crisis was the direct result of government tinkering? Do people not understand that the Federal government's implicit guarantee of the GSEs was at the core of mortgage market malfeasance? Do people not remember Barney Frank's push for lower lending standards to induce banks to lend to otherwise unqualified borrowers (did I mention something above about using the housing market to buy votes?)? Did the Federal Reserve not bend to political pressure both in the late 1980s and early 2000s to drastically reduce rates in response to market downturns? Both instances of articifially depressed rates lead to housing crises, bank collapses, and public hardships, by the way. So, how is more government involvement going to solve the issue?
The truth is that Bill Gross is talking his book. His firm is one of the largest holders of GSE debt, and he simply wants his own bailout. If our system is to work properly, risk-takers such as Mr. Gross need to reap the rewards... and suffer the consequences... of their decisions. To entreat for a government rescue is nothing short of gross.