Shame on You - Mr. Gross !

IRVINE, Calif., Aug. 18 /PRNewswire/ -- This news release is being issued on behalf of John Blake:  

As a free market capitalist, businessman, and financier this last thirty years, I have been an anonymous admirer and observer of your legendary success in the fixed income markets, and the great wealth you and the PIMCO organization have amassed during this period.  During these three decades, I never once questioned your motives, or your commitment to the American free market system.  However, now that has all changed.     Today, I detest what you, Warren Buffett, and other neo-socialists stand for.    Shame on you – Mr. Gross !    

You and Mr. Buffett now represent a powerful, corrosive, and troubling force on the American business and economic scene.    You are both former free market capitalists who have been inducted into a neo-socialist privileged class.   As members of this elite class, you and Mr. Buffett cloak yourselves in "free market capitalism", but suck from the teats of a liberal government through preferential corporate treatment, self-dealing, unprecedented political access and influence, and the forsaking of basic tenets of free market capitalism.  By way of analogy, you and Mr. Buffett have become part of an American style politburo.

For example, your recent pronouncements calling for the government's nationalization of the mortgage markets is absurd, runs counter to all free market beliefs, and supports the argument that you and PIMCO are preferential beneficiaries of a rigged system.  A neo-socialist system in which politburo members like you and Buffett reap the rewards of your political connections and influence, while true capitalists and tax payers are left holding the bag.    

More than most entities, you and PIMCO have benefited from the government's colossal and obscene failure in the mortgage market.   As you and your organization accumulated tens of billions of dollars of garbage FNMA and Freddie Mac paper in the marketplace, it was you, and other neo-socialists who called for the "explicit guarantee" of this heretofore non-guaranteed paper.    And, when the government declared its absolute guarantee of these junk mortgage securities, PIMCO and its shareholders reaped billions of dollars in profits, courtesy of the U.S. taxpayer.    And, when the U.S. government guaranteed PIMCO's commercial paper money market funds, the taxpayer covered this tab as well.    

Mr. Gross, I can see why you want the government guaranteeing and controlling the mortgage market.  You make lots of dough in this corrupted system.   Never mind that your current recommendations undermine American capitalism, fair dealing, and further corrodes our economic and political freedom.    I guess your motto is, if PIMCO can make a buck on it, I'm all for it.  

While I'm not as smart or rich as you, and I'm certainly not a member of the American politburo, here's where your recommendations fall short.    First, the furtherance of long term subsidies for FNMA and Freddie Mac, and/or superseding entities will exacerbate America's ballooning deficit.  Second, permanent subsidies will extend the duration of the current real estate bear market.   Third, these subsidies radically interfere and distort normal yield and price discovery for mortgages, and the underlying real estate.  Fourth, by subsidizing existing borrowers, and artificially propping up real estate prices, many prospective moderate income buyers, who could benefit from lower real estate prices, will be precluded from qualifying.   Fifth, private market lenders will be preempted from competing or re-entering the mortgage market.  Finally, the continuance of long term subsidies promotes a climate of government-banking corruption.

Mr. Gross, instead of promoting the nationalization of the residential real estate markets, why don't you suggest free market solutions?    For example, the Congress and U.S. Treasury could authorize a partial tax exemption for all monies lent by institutions and private lenders into the real estate mortgage market.    This would incentivize lenders to commit more money to real estate lending.   For example, if a lender was in a maximum 35% federal tax bracket, and a 50% partial tax exemption was granted for new real estate lending activities, a loan originated at a 5% yield would provide a net after tax return of 4.125%.  This represents a 26.9% higher after tax yield compared to the current 3.25% after tax return.   Another free market incentive would be to eliminate all capital gains taxes on new residential real estate purchases made during the next five years, presumably the period of greatest price stress.    A capital gains tax moratorium would spur many institutions, professional investors, and prospective home buyers to use their "private capital" to acquire property, rather than forcing tax payers to subsidize a federal lending boondoggle.      

As for your friend Mr. Buffett, he's playing the same game as you.   Apparently, as an adviser and friend of our socialist president, he has received preferential treatment for what should have been some of his less successful investments.   In the case of the overleveraged General Electric, they received an unprecedented $139 billion in FDIC guarantees for their GE Capital unit.   And, in the case of Goldman Sachs, the government guaranteed its counterparty risk at AIG, authorized rapid fire approval for a federal bank charter, guaranteed its commercial paper, and gave Goldman a slap on the wrist for what was likely orchestrated securities fraud.  It's interesting that Buffett and other neo-socialists at Goldman were able to get a federal bank charter in weeks, while an upstanding company like Walmart was unable to secure a bank charter, after years of being thwarted by the federal government and corrupt bankers.    

Mr. Gross, please be straight with the American public.   Tell them you and Buffett are no longer free market capitalists.  They'll understand.  After all Bill, isn't it just all about the money?    

John Blake is a free lance business writer and free market capitalist.  You can reach him at [email protected] or (714) 227-5557.

SOURCE John Blake