During the live hearing, Bill Gross stated the obvious: private players in the MBS space will never participate as long as long as the government accepts zero down payments. Of course, he is absolutely correct - the only entity stupid enough to gamble with its seemingly endless resources in such a manner is the US government. And in doing so, it continues to widen the schism between public and private interests, and makes the return of private businesses in this most important segment of US credit markets an impossibility. In fact, Gross urged a move one step further, with the full nationalization of the GSEs - as the GSEs are nationalized now in all but writing, this would be logical. Alas, the fact that US Debt to GDP would jump from 90% to 140% may make this proposal a little difficult to implement.
We're keeping one eat turned to the Treasury's Future of Housing Finance panel being hosted by Tim Geithner (you can watch a livestream of it on C-SPAN here).
Among the panelists is PIMCO bond chief Bill Gross, who has called for the government to maintain its strong backing of Fannie and Freddie.
Says Gross: It's just not going to happen that the private sector will somehow come in and replace the government in this area, and to think housing can be totally financed without the government's balance sheet.
Gross does favor an idea put forth by the American Enterprise Institute for countercyclical downpayment standards (increasing downpayment requirements when housing is going up), though other panelists are skeptical.
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