In his September “Investment Outlook” column for Pimco Bonds, famed bond fund manager Bill Gross argued that the White House should bail out the millions of American homeowners who face foreclosure.
Gross breezily wrote: “Write some checks, bail ’em out, prevent a destructive housing deflation that (Fed Chairman) Ben Bernanke is unable to do. After all ‘W’, you’re ‘the Decider,’ aren’t you?”
Bill Gross has been a thoughtful observer of markets for a very long time. It is puzzling that as keen an observer as Bill Gross can have so many fundamental misunderstandings. Perhaps I don’t understand his plan. Given that, let me pose a few questions to Bill Gross.
How exactly do you propose to determine which home buyers will get bailed out? Perhaps, only those in foreclosure? If so, how do you prevent homeowners from seeking foreclosure so that they can receive a government check?
Perhaps, Bill, (please forgive the informality; but if you can call President Bush “W”, I can certainly call you Bill) you might say bail out only those homeowners in need. But how do you measure need?
What about the family who had a perfectly fine $250,000 home but decided to trade up to a $500,000 home that they couldn’t afford. Are they in need or simply foolish? What about the family who refinanced their house to buy a new SUV and now can’t make their house payments? Are they in need too? What about the housing speculator? No, you say? Then how about the housing speculator who speculated to pay medical bills?
And what of the family who prudently saved up their money to buy a home that they could afford and refused to indulge in taking out gimmicky mortgages. They will now be in the position of bailing out those families who were imprudent. To add further injury to the prudent group, families who are today saving to buy a home will be priced out of the home market because bailouts will prevent housing prices from falling. The prudent family will then never be able to buy a house.
But why stop at bailing out homeowners. There are millions of Americans who have too much credit card debt. Higher interest rates may push them into bankruptcy and they will no longer be able to shop. Haven’t analysts told us that consumer spending is an important tool to stimulate the economy? Perhaps frugal Americans should bail them out too.
Maybe we should put a floor price on stocks? When stock prices go down, just “write some checks” for investors too.
Bill, your income and wealth is far greater than most American can imagine. Forbes tells me that in 2006, you were the 322nd richest person in America, with a net worth of $1.2 billion. If you truly believe in helping homeowners, why not start a charitable fund to help? You could write out a sizable check to seed it. Your charitable fund could then determine who is truly needy.
Finally, Bill, the premise that President Bush can just order a bailout is so constitutionally flawed that it is frightening that any educated person can advocate such a view. The Constitution of course gives the President no such power and you should know that.
The Constitution is built upon the rule of law, and the rule of law are has a fundamental premise that government does not play favorites. Impartial government does not tax poor citizens who do not own homes to bailout wealthier Americans.
Bill Gross, you should know better. I wonder if you are really an advocate for the homeowner or an advocate for those on Wall Street who bought subprime mortgages and found that it was a bad bet. I think it is the latter. After all, if the homeowner is bailed out, then subprime mortgages become good investments again.
Like Jim Cramer, you are wolf in sheep’s clothing. You pose as a friend of ordinary Americans and you advocate policies that hurt them.