No matter the cost, no matter the damage to the public weal, there are always some who through access and sheer financial wherewithal will turn a national disaster to profitable gain, not by contributing to the solution but by positioning themselves at the public trough to rain riches upon themselves while the nation, its citizens from all walks of life foot the bill. And thus, riding piggy back on the government bailout of Fannie Mae and Freddie Mac, Pimco, the worlds largest bond fund, cashed in with a one day profit of $1.8 billion.
On Thursday, the Wall Street Journal's lead editorial. "Bailout for Billionaires" pointedly questioned Mr. Paulson's motivations in giving "subordinated debt holders an entirely free pass". That, according to the WSJ, the subordinated debt hardly posed a systemic risk given that it represented only 1% of senior debt. It is debt that carries a higher rate of return but therefore carries a higher risk which is why it is held by deep pocketed investors better able to absorb potential losses. As the situation at Fannie and Freddie deteriorated investors reasonably feared a sub debt wipe out or at the very least a significant restructuring proposal asking "for some cash and giving them a new piece of paper" otherwise termed as a "haircut".
But wait. That kind of thinking doesn't apply to the powerful such as Pimco and especially if you have almost unlimited access to an influential and widely followed broadcaster on matters business and finance such as CNBC. Yes, the very same network whose hysterical oil reporting over the past couple of years has helped nudge prices to previously unimagined levels to $147 a barrel, exemplified by their recent reporting on the advent of hurricane Gustav and its prospective impact on the price of oil. With Gustav barreling along a few weeks back, CNBC commentators were more interested in drama than a cool analyses of the facts (please see "Gustav and Oil Price Hysteria" 09.01.08) . Viewers were regaled with cartoon depictions of a sea of oil rigs in the Gulf of Mexico overlain with ominous arrows evidencing the storm's trajectory, in combination with bobbing heads predicting an Armageddon of disruptions, shortages and ten dollar crude oil price rises all presented to CNBC's viewership as emerging gospel. This, without a scintilla of incredulousness, nor questioning. If you were listening, it was enough to make you hide under the covers.
The very same network made its airways available to the incessant agitations of Bill Gross the manager/CEO of Pimco permitting him to browbeat the powers to be, and frighten the public, militating for an urgent government bailout of Fannie Mae and Freddie Mac. He was given repeated face time on CNBC while its array of commentators never made it clearly understandable to their hapless viewers what was at stake for Pimco, the enormous profits to be wrought and at what cost to the body public.
After the Fannie Mae, Freddie Mac bailout CNBC , with no little fanfare presented the news that on Monday September 8th the day after the bailout, was the most profitable day in Pimco's history. A bonanza of $1.8 BILLION flowed into their coffers on the backs of the government bailout and taxpayer risk. Continuing their role as patsies, CNBC after presenting us with this bit of news, had the poor taste to invite Gross on the air again for a victory lap without the slightest self-examination of how their actions and subservience to Pimco might have contributed significantly to making Pimco's triumphal heist possible.
The WSJ, in its editorial, conjectured that Goldman Sachs was also "a lot richer" given the bailout terms, reminding us that Goldman Sachs "is where Mr. Paulson used to work". Well Main Street, straighten up, stop whining and get to work. You have a lot of work to do to pay up all that bread your government has given away to their well connected friends on Wall Street, in high financial circles, in the oil patch. As for the Press ? Shh! Not so loud.
You'll wake them up (herein, the WSJ excepted).
Oh, and by the way in case you missed it, a company called "Allianz" is negotiating with the New York Giants and Jets for naming rights to their new stadium. It was pointed out that Allianz, a German insurance giant, was reported to have had ties to the Nazis according to the Associated Press and as highlighted this weekend in the New York Sun (see "Company With Nazi Ties Seeks Stadium Naming Rights" New York Sun 09.12-14.08). Allianz insured the death camps and "had refused to pay life insurance claims" to the families of those who held Allianz policies and were murdered in the camps. Instead it granted the proceeds to the Nazis. Allianz says they have atoned for their past history. Pimco, since 2000, has been a subsidiary of Allianz.