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Wednesday, February 27, 2008 1:51 AM

Old Maid: Bill Gross Has Right Game, Wrong Solution

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I continue to be amazed at the ability of Bill Gross to identify problems but come up with precisely the wrong solution. Before we get to the latest Bill Gross post we need to understand how to play the game of "Old Maid".

"Old Maid" is children's card game. The idea of the game is to not get stuck holding the "Old Maid". In a regular deck of cards, that would typically be the queen of spades.

With that background, please consider: No Country for Old Maids. Following is the key excerpt.

If capitalism is a going enterprise – and we think it is – then investors will eventually return to play similar, perhaps more conservative games – much as they have in the past. And if Washington gets off its high “moral hazard” horse and moves to support housing prices, investors will return in a rush. PIMCO wants to sit at this more attractive return table – to provide an attractive return on your money (no matter what the asset class) as well as a return of your money. No Old Maids. No silicone AAA ratings. And ladies – no crotchety old bachelors either. The game, as well as the name of the game, is changing. It’s no country for Old Maids anymore.

William H. Gross
Managing Director
Good Lord! Listen to that nonsense.

Since when are government price supports capitalism? Clearly, Bill Gross, manager of the world's largest group of bond funds does not know what capitalism is. Price supports and price fixing are part of failed Soviet and Chinese central planning. And as China and Russia embrace capitalism, Bill Gross embraces failed central planning.

If this was the first time, one might conclude that Gross was writing in a drunken stupor. But it's not the first time.

Please consider Bond Guru Bill Gross on the Housing Crisis.
Bill Gross, founder and chief investment officer of PIMCO, the world's largest family of bond funds with $746 billion in assets under management, believes that without government intervention, home prices could drop as much as 20 percent over the next two years. U.S. News spoke with Gross about what he thinks the government should do to prevent such losses.

U.S. News: So it's necessary for the government to essentially subsidize mortgages?

Gross: Yes, I think so. You need an interest rate below existing interest rates. I think they need to subsidize it. Let's not get ridiculous, but with a 4.5 or 4 percent interest rate and 0 percent down for people who have demonstrated good credit and a willingness to pay on time. Let's get it over with and move forward. Otherwise, nobody knows for sure, but the futures market is projecting another close-to-10-percent decline in housing prices. If that's correct, we're really in trouble. We need to do something.

U.S. News: It seems that you’re saying a stimulus package alone won’t solve the housing problem.

Gross: Definitely not. .... It's OK as an emergency stopgap thing, but the real problem is in the housing market, and that's where Washington should be really focused. I get the sense they're beginning to get it.
It is sickening to see someone like Bill Gross and PIMCO who are only where they are today because of opportunities provided by capitalism, openly embrace failed central planning policies. The ultimate irony is that Gross is embracing failed central planning just as China is rushing like mad to embrace capitalism.

Mike "Mish" Shedlock
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