Bond Giant Bill Gross Tells Treasury To Get Out Their Checkbook


Pimco manager Bill Gross is tired of using his fund’s money to shore up Fannie Mae and Freddie Mac. His commentary posted Thursday said the powers that be need to “open up the balance sheet of the US Treasury” which really means in my view “get out your checkbook, Hank, and take care of that housing mess”.

Since Gross’s Total Return bond fund is heavily invested in Fannie and Freddie mortgage-backed bonds this is obviously sound albeit self-serving advice he’s giving the Treasury Secretary, Hank Paulson.

This is currently the theme in Wall Street circles…bailing out or privatizing the GSEs will bring housing stability. Warren Buffet, Alan Greenspan and now Bill Gross are all encouraging Paulson to do something…anything. I’ve written on the previous two, so now it’s Bill’s turn.

What Is Bill Gross’s Solution?

Strangely it differs greatly from the other two in material ways. Gross wants the government to starting writing checks to the home owners themselves through subsidized home loans or simply to buy foreclosed properties. He argues the government should not be bullied into thinking helping the homeowners is morally indefensible.

He puts it this way,

“The bill for our collective speculative profligacy, obvious in the deflating asset markets, can be paid now or it can be paid later. The tab will be less if paid up front, than if swept under a rug of moral umbrage intent on seeking retribution for any and all of those responsible.”

Let me translate: “Speculation and stupid assumption were made by all of us…Wall Street and Main Street alike…so don’t just help those holding the mortgage debt (Wall Street)…help those holding the homes too (Main Street). Get off your moral high-horse and give them some money…it will be cheaper in the long run.” (Interpreting Gross is like trying to interpret Greenspan, more art than science. But after 16 years of watching them both, I’m getting the hang of it.)

I agree with him on both his logical and moral arguments.

What is the logic behind shoring up the debt holders (mortgage holders) and not the asset holders (home owners)? If the asset values were upheld, the debt holders are taken care of simultaneously.

What is the morality of helping out Wall Street while forgetting about Main Street? I rather the government not spend tax payer money on any bail outs, but once they open the coffers to the big boys, all bets are off!

It’s clear with the Economic Stimulus package putting about $150 Billion in the hands of everyday Americans this year, the current Administration isn’t “morally” against hand-outs. So why the hesitancy to give another hand-out/bail-out just to troubled home owners?

  • Is it because they think they are helping out a bunch of real estate speculators?
  • Is it because the word “foreclosure victim” is like saying “underprivileged” and God knows the current Administration would never acknowledge there is such a person in our society?
  • Is it because a home owner bail out would mean admitting their regulators including the Fed, the SEC, and OFHEO were all asleep at the wheel?
  • I don’t know the answer, but it’s clear both Gross and I (and now you too) can see the contrast between the speedy action to bailout Bear Stearns, for example, and the hesitancy to help even the most deserving home owner. It is real. And I agree with Gross the government should shed their bias quickly and help the people, not the Wall Streeters.

    I’d rather Paulson write checks to homeowners than buy stock in Fannie Mae or Freddie Mac. Once you start down that road, you have to finish which will likely cost $400 Billion. What could real foreclosure victims do with even half of the sum?

    Most people learn their lessons when they make stupid mistakes, even if they get bailed out…companies never do. Companies formulate the next plan to privatize profits and socialize losses since it worked so well the last time.

    So I’ll end by saying, “Hank, get out your checkbook and make it payable to…”US Home Owner”.

    Anything less will be business as usual in Washington.

    About Author

    Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog,, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.


    1. I don’t see how artificially trying to keep unaffordable house prices high will help in the the long run. If people can’t afford homes now, due to unsustainable bubble years appreciation — and that’ is exactly the case in Los Angeles — how does it help to try and sustain those prices as the unemployment rate crosses 6%.

    2. jdj,

      Gross’s point wasn’t “should govt money go to home owners and support the home prices” vs. do nothing.

      Gross’s point was the govt is going to bailout the housing market with hundreds of billions sooner or later….and giving it directly to the home owners is better than giving it to Fannie and Freddie and Bank of America.

      And I agree…

      Answer this question to get the point another way:

      Why shore up the loan instead of the home when shoring up the home shores up them both?

      Also, do you really think that Orange County real home values 10 years from now won’t be higher than they are today?

      Gross knows the answer to that one and I do too.

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