"Bond King" Bill Gross has been investing in institutions that he believes the Fed will bail out, and then loudly talking his book, and finally cashing in - making an obscene $1.7B in one day on the Fannie/Freddie bailout. But now it seems like his bets on Lehman and AIG bailouts may backfire.. Can he persuade the Paulson to back AIG after all?
Doesn't all this raise moral hazard to a whole new level? Forget about encouraging risky behavior in future. It seems like Bernanke and Paulson have managed to cause risky behavior right now.. http://ftalphaville.ft.com/blog/2008/09/16/15943/the-bill-gross-effect/ ---------------------------------------snip Bill Gross's Pimco seems to be at the heart of nearly every financial crisis nowadays. That's because he's manager of the world's biggest bonds fund you say? Probably. News today that Gross has guaranteed $760m of debt issued by AIG - you know, the insurer next in line in the credit crunch A&E ward and with only 48 hours to live. The swaps are part of Gross's bet this summer that corporate bonds tied to certain companies will recover, as they're too important for the US government to let fail. He's been vindicated on Fannie & Freddie so far, making a tidy $1.7bn, but may have seen his gamble backfire when the Fed declined to save Lehman over the weekend. http://www.ft.com/cms/s/0/838d3cb4-7e96-11dd-b1af-000077b07658.html ---------------------------------------snip The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae and Freddie Mac. [...] Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt. -- D.A.M.M - Drunks Against Mad Mothers
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