PIMCO’s Bill Gross today urged the US government to go “all in” in the nationalization of the mortgage finance system:
“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said today at a U.S. Treasury Department conference in Washington. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
“Without government guarantees, mortgage rates would be hundreds — hundreds — of basis points higher, resulting in a moribound housing market for years,” Gross told a U.S. Treasury housing finance conference.”
He said PIMCO would not consider investing in a private, or privately insured, mortgage pool unless it was accompanied by 30 percent downpayments — far above the current norm.
Gross sees what we all know – while the housing bubble may have deflated, the mortgage bubble is alive and well, thanks to artificially low interest rates. Left to an unfettered free market, rates would skyrocket, and the housing market would get smacked down once again.
While I personally have no problem with that – in fact, as a renter, I’d welcome it – Gross not only has a horse in the race, he’s got the majority of the field. He wants to prevent a collapse of the housing market, and on a broader scale, the US government. The stakes are much lower for us common folk who are not managing billions.
I say let ’em all fail. The short term pain would be significant, but it would cleanse the excesses and rodents from the system.