Sushi Money

    I’ve always been a big fan of PIMCO’s Bill Gross.   Primarily because of his insightful commentaries and a unique ability to provide macro context to the complexity of the financial markets.  Yet I disagree in part with his comments today in calling for the White House to rescue struggling homeowners across the nation.  Few question the need for some level of reform in the mortgage lending space, and help for homeowners who don’t know where to turn. Congress is now weighing the concerns and potential for change appropriately, and many lenders and others are starting to work with homeowers who need help.  And yes, most certainly President Bush should support legislation and initiatives to help those facing foreclosure or skyrocketing house payments. This is only right.  But that’s not where, and by whom, these issues should be solved in my opinion.  Frankly, it’s pretty amazing that a leading bond market professional would toss it up to the government to figure this one out, but it certainly speaks to the degree of concern over the banking and credit problems they face.

     While acknowledging, sort of, that this is the responsibility of the Federal Reserve, Mr. Gross doesn’t believe the Fed can really do anything.  And Uncle Sam will bail everyone out?!   That’s where I strongly disagree:  In addition to the White House, the Fed, and even Congress…. why not look to the BANKS and other FINANCIAL INSTITUTIONS for their responsibility and continued inadequate response to this issue?   After all, it is the banks, hedge funds and other institutions and lenders that caused this mess, and have now panicked in response to it.   Even with the Fed’s injections of billions of dollars and a discount rate cut, apparently many financial institutions are still in hiding, unwilling to extend credit where it is needed… or least afraid to step back in the “pool”.  If anyone should be writing “fat checks” it’s the banks and other institutions extending a helping hand to struggling consumers. 

    For some fascinating insight on the issue, check out this video of Countrywide CEO Angelo Mozilo speaking for nearly 15 minutes on CNBC.  He said some revealing things about the mortgage market, most importantly in my opinion that liquidity is not improving, and the commercial paper market is still falling.  What does this mean for him?  It challenges their ability to do business… to extend and conduct mortgage loans closings for homebuyers and those trying to refinance.  This is a real problem… especially when you have potential borrowers with solid credit and income… and they can’t find a loan because the banks and other financial institutions are afraid and unwilling to extend credit?  

   So Mr. Gross… instead of just calling on the White House to “save” everyone, especially the financial institutions, why not call on your peers, and those among the leadership at the largest financial institutions to gather round a table and find out the best way to move forward!   And do you know what’s worse?  Many of these same banks and lenders are now charging exhorbitant extra fees and other charges now… how is that helping consumers?  And someone please tell me… when does government have the answer for society’s problems?  Rarely. Most often it is the private sector that figures out the issues, and then appeals and presents solutions that are eventually adopted in the form of legislation.  Leadership is needed… and yes, the governement can provide that leadership.  But financial institutions must also show leadership in time of crisis… not waiting in the wings.

     Mr. Gross… if you and many other leading bond and equity gurus get together, you just might calm the markets, and calm down the professionals within the countless institutions who are scared to death of providing liquidity to mortgage originators and banks conducting similar business.  What I’d really like to know is… who are they afraid for? Why is this fear really there for the insitutions?  Is it the bottom line and their investors…. fear based on greed and lower returns?  What relationship does this have to do with hedge funds, on the brink of collapse because inummerable wealthy and institutional investors want their money back right now?  

Many questions, few answers, but it’s interesting that most of the fear and panic of the last few months had little to do with “retail investors”… rather it continues to be the analysts, managers and institutional investors that are running scared and have ”turned off the taps” of liquidity.   Maybe it’s called being prudent.  Either way, the liquidity issues need to be solved by those who fostered this situation in the first place.  Gather ’round the table folks… you can do more to solve these problems than anyone.  Just my opinion.

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