From Bill Gross, Managing Director of PIMCO, in his otherwise serious monthly report of the economy.
Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns [homes] stop going down in price and then to make them go up again. That, however, is easier said than done. One of the wisest men I know has this serious but admittedly impractical solution: have the government buy one million new/unoccupied homes, blow them up, and then start all over again. Absent that, he’s not quite sure what to do, nor am I, with the exception of the next paragraph’s proposal.
He thinks that, since mortgage rates continue to rise even as the Fed drops rates, the omnibus housing/GSE bill is a first step in a long road to recovery. Yes, a New Deal-like program of massive governmental spending and bailouts seems both inevitable and badly needed.
PIMCO manages several hundred billion in bonds. People pay attention to Gross and when this report, released today, projected $1 trillion in financial institution writedowns due to bad mortgages, the markets promptly nosedived.
He also has a sense of humor. This month’s column is titled “Mooooooo!” because in his estimation the financial markets currently have a case of Mad Cow disease.
Well, it would put unemployed framers back to work.
And why do “mortgage rates continue to rise even as the Fed drops rates”? Rates are rising because inflation is rampant and money to lend is scarce. Lenders have to charge more to make money– and that’s what they’re in business for.
That the Bernanke Fed thinks it can lower mortgage rates just by dropping its interest rate speaks to its incompetence.