Comments on: Mohamed El-Erian Argues for Propping Up Asset Prices http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html Sun, 22 Nov 2009 19:08:53 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Elizabeth http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5468 Elizabeth Wed, 19 Mar 2008 18:42:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5468 Pimco is out doing roadshow to institutional investors on the case for buying FNMA/ Freddie/ GNMA MBS - I actually attended yesterday so this is very timely.<br/><br/>One part of it I actually buy - GNMAs at UST + 2.5% is very interesting. Yes, they are talking their book but I don't have a problem with that.<br/><br/>The speaker said two things that freaked me out.<br/><br/>1) Anyone who doubts govt backing of FNMA / Freddie MBS is smoking crack. To be fair, they did differentiate from FNMA equity/ corporate debt but still...<br/><br/>2) That stopping housing prices from falling more "solves everything". This came near the end and the speaker was especially excited. <br/>I have a couple of reactions.<br/><br/>First, I don't have a problem with Pimco actively working with government officials to educate them on the problems they are seeing. They are the bond market and congress/ fed / treasury should be talking to them. They are starting to cross the line between education and outright manipulation, however.<br/><br/>Price controls???? Are THEY on crack???<br/><br/>On the other hand, I do think that getting some support for high quality MBS market is important - insanely high margins mean higher than necessary mortgage rates. While getting lower mortgage rates does not "solve everything", it does help. Pimco is out doing roadshow to institutional investors on the case for buying FNMA/ Freddie/ GNMA MBS – I actually attended yesterday so this is very timely.

One part of it I actually buy – GNMAs at UST + 2.5% is very interesting. Yes, they are talking their book but I don’t have a problem with that.

The speaker said two things that freaked me out.

1) Anyone who doubts govt backing of FNMA / Freddie MBS is smoking crack. To be fair, they did differentiate from FNMA equity/ corporate debt but still…

2) That stopping housing prices from falling more “solves everything”. This came near the end and the speaker was especially excited.
I have a couple of reactions.

First, I don’t have a problem with Pimco actively working with government officials to educate them on the problems they are seeing. They are the bond market and congress/ fed / treasury should be talking to them. They are starting to cross the line between education and outright manipulation, however.

Price controls???? Are THEY on crack???

On the other hand, I do think that getting some support for high quality MBS market is important – insanely high margins mean higher than necessary mortgage rates. While getting lower mortgage rates does not “solve everything”, it does help.

]]> By: njdoc http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5435 njdoc Wed, 19 Mar 2008 02:20:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5435 It has become official, there is now absolutely no difference between the cronies that ran the USSR, and the finance cronies running the US today. Price controls on assets will work as well as price control on cabbage. I cannot comprehend the fact that members our our big bad, bare-knuckles capatalist elite are stooping so low. We have preached to world about free markets for more than 2 generations, but now when our "wealth" is on the line, asset prices must be maintained at a permanently high plateau? More flim-flam from Wall Street! "Gentle Ben, could by up some of my crap paper please?" It has become official, there is now absolutely no difference between the cronies that ran the USSR, and the finance cronies running the US today. Price controls on assets will work as well as price control on cabbage. I cannot comprehend the fact that members our our big bad, bare-knuckles capatalist elite are stooping so low. We have preached to world about free markets for more than 2 generations, but now when our “wealth” is on the line, asset prices must be maintained at a permanently high plateau? More flim-flam from Wall Street! “Gentle Ben, could by up some of my crap paper please?”

]]> By: Lune http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5428 Lune Tue, 18 Mar 2008 20:58:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5428 It's unsurprising that of the two lines in the sand that El-Erian draws, he seems to choose the one that would bail <i>himself</i> out. I see that the "sanctity of contracts" only applies to homeowners, and not to Wall St. counterparties that are now going BK.<br/><br/>As you've pointed out before, Yves, corporate bankruptcy rules allow judges to rewrite loan terms. So that line has already been crossed for companies. Why not extend the same mercy to people as well? Oh yeah, I forgot. Because El-Erian and his bond investors would be the ones getting the shaft... It’s unsurprising that of the two lines in the sand that El-Erian draws, he seems to choose the one that would bail himself out. I see that the “sanctity of contracts” only applies to homeowners, and not to Wall St. counterparties that are now going BK.

As you’ve pointed out before, Yves, corporate bankruptcy rules allow judges to rewrite loan terms. So that line has already been crossed for companies. Why not extend the same mercy to people as well? Oh yeah, I forgot. Because El-Erian and his bond investors would be the ones getting the shaft…

]]> By: Jim Schlemmer http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5426 Jim Schlemmer Tue, 18 Mar 2008 20:36:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5426 "Breaching either line involves long-term damage to the US economy – most notably through moral hazard. In intervening to stabilise the system as a whole, the authorities end up protecting certain people and institutions from the consequences of their ill-advised actions, thereby undermining the discipline that is crucial to market efficiency. As unpleasant as this is, the moral hazard risk is inevitable at this advanced stage of the crisis. Indeed, the question is not just what happens to irresponsible lenders and imprudent borrowers. It is also about the damage that is being inflicted on others as the financial system freezes."<br/><br/>This is typical self-serving rhetoric. First, admit that those who should be punished will likely get bailed out (and this probably includes the author). Then make a quasi-humanitarian appeal for the innocents who stand to hurt. “Breaching either line involves long-term damage to the US economy – most notably through moral hazard. In intervening to stabilise the system as a whole, the authorities end up protecting certain people and institutions from the consequences of their ill-advised actions, thereby undermining the discipline that is crucial to market efficiency. As unpleasant as this is, the moral hazard risk is inevitable at this advanced stage of the crisis. Indeed, the question is not just what happens to irresponsible lenders and imprudent borrowers. It is also about the damage that is being inflicted on others as the financial system freezes.”

This is typical self-serving rhetoric. First, admit that those who should be punished will likely get bailed out (and this probably includes the author). Then make a quasi-humanitarian appeal for the innocents who stand to hurt.

]]> By: dearieme http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5421 dearieme Tue, 18 Mar 2008 17:58:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5421 I used to admire much of the writing on the Pimco website but lately, led by Mr Gross, much of it has read like special pleading. Pity. I used to admire much of the writing on the Pimco website but lately, led by Mr Gross, much of it has read like special pleading. Pity.

]]> By: rexl http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5420 rexl Tue, 18 Mar 2008 17:25:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5420 anon 11:34, I totally agree with you. And I don't believe any one is learning when the consequences of mistakes and bad decisions are muted by the mother fed coming to the rescue. eventually the monster becomes too large to contain, as it has never been properly scolded but only enabled along its course of irresponsibility, ultimately giving birth to its offspring; war, famine and all the other 'fairy tales'. anon 11:34, I totally agree with you. And I don’t believe any one is learning when the consequences of mistakes and bad decisions are muted by the mother fed coming to the rescue. eventually the monster becomes too large to contain, as it has never been properly scolded but only enabled along its course of irresponsibility, ultimately giving birth to its offspring; war, famine and all the other ‘fairy tales’.

]]> By: S http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5419 S Tue, 18 Mar 2008 17:15:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5419 The irony is too rich to listen to Pimco shills tell us how it is ok for the broker dealers and fed to park collateral becasue after all theses securities are "money good." This as he mutters how the governement should be buying mortgages that arn't technicially in distress because they are not money good. Mr. Pimco,<br/><br/>How exactly does buying mortgages do anything for joe citizen who can't affrod it?<br/><br/> How exactly does this encourage banks to originate the low rate mortgages that fueled those strataspheric prices?<br/><br/>How do investment banks rewind and brainwash the public and financial complex into buying this securitized garbage?<br/><br/>Finally, are you a firm bid if we can get the gears cranking again? <br/><br/>The solutions are always worse than the problem. maybe it was his time at Harvard. The irony is too rich to listen to Pimco shills tell us how it is ok for the broker dealers and fed to park collateral becasue after all theses securities are “money good.” This as he mutters how the governement should be buying mortgages that arn’t technicially in distress because they are not money good. Mr. Pimco,

How exactly does buying mortgages do anything for joe citizen who can’t affrod it?

How exactly does this encourage banks to originate the low rate mortgages that fueled those strataspheric prices?

How do investment banks rewind and brainwash the public and financial complex into buying this securitized garbage?

Finally, are you a firm bid if we can get the gears cranking again?

The solutions are always worse than the problem. maybe it was his time at Harvard.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5417 Anonymous Tue, 18 Mar 2008 16:59:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5417 pimco owns mucho amounts of freddie and fanny listed under 'government' even thou it isnt really a gov agency....pimco need freddie and fannie backstopped by law or they are toast when both collapse....... pimco owns mucho amounts of freddie and fanny listed under ‘government’ even thou it isnt really a gov agency….pimco need freddie and fannie backstopped by law or they are toast when both collapse…….

]]> By: James http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5414 James Tue, 18 Mar 2008 16:28:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5414 There only still in charge because it hasnt gotten bad enough yet. It will. There only still in charge because it hasnt gotten bad enough yet. It will.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up.html#comment-5409 Anonymous Tue, 18 Mar 2008 15:34:00 +0000 http://www.nakedcapitalism.com/2008/03/mohamed-el-erian-argues-for-propping-up-asset-prices/#comment-5409 Everyone admits these are interesting and unprecedented times. Yet the same fools who didn't predict this situation are more than willing to puff up and tell us what needs to be done.<br/><br/>I have a modest suggestion. Let's do nothing and see what happens. Unlike the protagonist in Poe's "Descent into the Maelstrom," no one is in a position to understand the forces at work sufficiently to take stabilizing countermeasures. Bernanke's "shoot from the hip" approach will most likely have unintended adverse consequences.<br/><br/>What I don't find is collective intelligence but rather just a bunch of squawking and self-serving commentators (not referring to you here, Yves) talking up their own book.<br/><br/>We are confronting systemic problems in the global financial system yet no one has the authority or grasp of the situation required to promote stability. Or so it seems to this gopher.<br/><br/>The same clueless crew that navigated us into this storm is still in charge. They blunder about and perhaps they will shoot themselves before they kill us. That may be our best hope.<br/><br/>All this because of the invention of the plow. Blame agriculture. Everyone admits these are interesting and unprecedented times. Yet the same fools who didn’t predict this situation are more than willing to puff up and tell us what needs to be done.

I have a modest suggestion. Let’s do nothing and see what happens. Unlike the protagonist in Poe’s “Descent into the Maelstrom,” no one is in a position to understand the forces at work sufficiently to take stabilizing countermeasures. Bernanke’s “shoot from the hip” approach will most likely have unintended adverse consequences.

What I don’t find is collective intelligence but rather just a bunch of squawking and self-serving commentators (not referring to you here, Yves) talking up their own book.

We are confronting systemic problems in the global financial system yet no one has the authority or grasp of the situation required to promote stability. Or so it seems to this gopher.

The same clueless crew that navigated us into this storm is still in charge. They blunder about and perhaps they will shoot themselves before they kill us. That may be our best hope.

All this because of the invention of the plow. Blame agriculture.

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