Bill Gross should study Alstrynomics
January 29, 2009
– Comments (8)
NEW YORK (MarketWatch) -- The government needs to prop up other sectors of the credit markets such as commercial mortgage-backed securities and municipal debt, said Bill Gross, chief investment officer of bond giant Pacific Investment Management Co., on Thursday.
Doing so would help keep solvent borrowers such as shopping malls and office buildings, as well as municipalities, hospitals and universities, Gross said in a commentary on Pimco's Web site.
Policymakers "should recognize that supporting critical asset prices such as municipal bonds, CMBS and even investment-grade corporate bonds is a necessary step towards eventual economic revival," he said.
No Mr. Gross, you have it bass ackwards. The way the asset prices are supported is if the underlying borrowers are solvent. If the cities can pay, the bonds are sound. If the borrowers can pay, the debt good....plain and simple.
It ain't that complicated and is taught in first year Alstrynomic classes.
The asset prices are crashing because the underlying borrowers can't pay. The way to support the asset prices is to restructure the underlying borrowers (NOT BY PROPPING UP THE PAPER!!!!) so the borrowers can pay. Once the borrowers can pay...debt will be good again and banks can start lending again.
Until we address the disease, we are just f*#king around with the symptoms.
In real life, I have number of friends who are physicians. As a physician, when you chase the symptoms and not the disease, the symptoms often spread. If you let it go too far, the patient often dies.
Here is a timely real world example:
(CNN) -- One look at her photo, and you can't help but ask: How could someone so young and vibrant die so quickly from an infection?
Brazilian model Mariana Bridi da Costa was a healthy 20-year-old when doctors told her she had a urinary tract infection, her family says. The infection spread, and after amputating her feet, doctors thought they had the situation under control, according to a blog run by a family friend. "She's alive, [she] will survive," Renato Lindgren wrote on the blog on January 20, before da Costa also had to have her hands amputated, and part of her stomach and both kidneys extracted. "She can eat well, visit the sea, swim, travel, talk with her friends and family, marry and have a baby. She has a full and beautiful life ahead."
Four days later, da Costa was dead.
From an economic perspective, the infection is insolvent BORROWERS. The symptoms are defaulting debt. Until you cure the infection, the symptoms get worse. Pretty soon, our economy is dead. You think I am kidding???? We are all infected kids.
Anyone think Mr. Gross might be a bit biased because he holds a whole bunch of paper????
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