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Pimco Punts on the PPIP

Posted by Larry Doyle on July 9, 2009 2:27 PM |

Did Bill Gross just flip off Uncle Sam? It would appear that he did. While the U.S. Treasury is touting the official launch of the Public Private Investment Program (PPIP) as a noteworthy event, the most significant aspect is the absence of Mr. Gross and Pimco as one of the managers. As Bloomberg highlights, U.S. Treasury Opens Distressed-Debt Program Without Pimco:

The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.

The Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the initiative’s design.

Uncertainties? How about if we return to Mr. Gross’ May 2009 Investment Outlook, in which he cautioned us all about business dealings with Uncle Sam:

If the government indeed becomes your investment partner,  you should keep the big Uncle in clear sight and without back turned.

Over and above Pimco’s absence, the other notable development within the PPIP is the fact that Uncle Sam plans on injecting 75% of the initial equity capital while the private managers inject 25%.  Given that equity split, why wouldn’t the taxpayer receive 75% of the returns? In my opinion, Treasury is injecting more capital simply because a $20 billion or even $30 billion launch would render this initiative as nothing more than PPIP: A Virtual ‘Odd Lot’, as I had written the other day.

. . . ‘without back turned’ . . . ‘odd lot’ . . . two strikes before the game has even begun.

Mr. Gross’ absence speaks volumes!!

LD

  • Aaron kramer

    PIMCO backed out because of the Chrysler bond deal. The higher ups realized that this administration can’t be trusted and they have a duty to their investors. The PPIP rules keep changing and the only participants are being forced/coerced by the government to participate. This led PIMCO to believe that if the group made a decision to go along with a change to the program in the future, that adversely affected PIMCOs clients, PIMCO would have no recourse. This administration is a master at extortion and blackmail.

    • Barbara

      Get a grip… clearly you are not a holder of the fraudulently sold PIMCO arps. Otherwise, you would not hold senior PIMCO Mgmt. in such esteem. They are absolutely corrupt. They are thieves. They refuse to redeem our ARPS while most other funds have at least made an effort to do so. In the meantime, they hold onto our money and we receive a pittance in dividends.

      • Ron

        Barbara you correct. We are holding PIMCO Corporate Opportunity APRS through the perferred shares and we just want our money back. We do not care about the accrued dividends, just give us the money back. The opportunity cost has been high enough. I have no respect for PIMCO and BIll Gross

  • DGregg

    Mr. Doyle,

    I am an HC student and wanted to say that I really appreciate your site and visit it frequently for an honest opinion on market/economic activity. I will definetly pass this resource on to everyone in the Student Managed Endowment Fund at HC.

    With regards to PPIP, the New York Times featured an interesting article about the perverse incentives a plan like PPIP would create for Wall Street firms. I found it particularly interesting that the plan will succeed if and only if tax payers lose big. If you have the time it is definetly worth a look. It wasn’t written by your average joe either…the article was written by Nobel-Prize winning economist Joseph E. Stiglitz, a professor of economics at Columbia who was chairman of the Council of Economic Advisers from 1995 to 1997.

    Here is the link…http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html

    Enjoy!

    • Larry Doyle

      Thanks for writing. Glad you like the site. Thanks for sharing it with your friends and colleagues.

      Mr. Stiglitz has untold credibility. I do not necessarily agree with him on all topics, but I agree with him on this. Thanks for sharing the link.

      Allow me to share with you,

      White House Ties to Wall Street Doom Bank Rescue

      Go Cross Go!

  • Kathy

    PIMCO seems to give everyone the finger, including its own clients. Bill Gross has refused to return a single penny of auction-rate securities money that he knows was sold fraudulently — unless he was forced by law to give it back.

    Gross and PIMCO are without ethics. He has no place in an ethical marketplace.

    • Barbara

      Kathy,

      I absolutely agree with you!! Pimco has refused to redeem any arps!! They continue to hang on to their clients money while we receive a pittance in dividends. They are thieves and don’t give a damn about “doing right by their clients.”






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