Tuesday, March 18, 2008

If Your Going to Talk Your Book, at Least Be Honest About it

Given the monumental implications of such a move, at the very, very, very least, can't the mainstream media sources simply attempt to question, with just a bit of skepticism, Pimco's well publicized "opinion" that parts of the mortgage industry should be nationalized via the Fed purchasing outright mortgage backed securities? Pimco is not exactly a disinterested party in the discussion, which is fine as that is their call, but if there is to be no questioning of this, how about at least a little disclosure during their media blitz today alone (CNBC here, CNBC here again , op-ed here)?

For years now, Pimco has had significant investments in Mortgage Backed Securites (MBS). From a December 2006 Pimco "In Focus", it appears to be around $200 Billion significant;

"PIMCO has traditionally overweighted mortgage-backed securities in its portfolios"

"Fannie Mae and Freddie Mac securities represent about $150 billion, or about three-quarters of what we own."

From August 2007, when the subprime problems really started to take hold in the markets (February's dip was apparently forgotten by then), Pimco reassured investors that they were in very high quality mortgages, no subprime;

"For some time, PIMCO has forecast that problems in subprime mortgages will lead to slower consumer spending and an eventual easing by the Federal Reserve. In our view, weakness in this sector could persist for a good while yet. Fortunately, PIMCO's mortgage-backed security (MBS) and asset-backed security (ABS) positions in PIMCO Total Return Fund currently remain unaffected by troubles in the subprime sector as our positions are very high quality."

Apparently, not only was Pimco comfortable with their MBS holdings, in at least their massive $104 Billion Pimco Total return fund , they even raised the stakes on their bet on MBS in the last half of 2007;

"Gross also raised the fund's holdings of mortgage-backed securities to 59 percent."

So, getting back to the present, please excuse me if I'm just a bit skeptical of how its truly for the greater good that the Fed should artificially prop up and subsidize the price of mortgage bonds by purchasing them. Remember though, just the "high quality" ones, you know the only ones that Pimco owns (via the op-ed piece mentioned);

"First, supplement monetary policy by getting the Fed to fill the void left by slowing moving fiscal agencies – through outright purchases of high-quality mortgage securities."

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