Gross Urges ‘Full Nationalization’ of Housing Finance
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the mortgage- finance system as the Obama administration plots the revival of a market that was at the center of the 2008 credit crisis.
“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said today at a U.S. Treasury Department conference in Washington. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
Treasury Secretary Timothy F. Geithner and Housing and Urban Development Secretary Shaun Donovan gathered housing- industry stakeholders to seek advice as the administration prepares a housing-finance overhaul to be delivered in January. The position taken by Gross, whose firm is among the biggest holders of U.S.-backed mortgage debt, is at odds with industry and government officials who have urged a smaller federal role.
Geithner said the government must reduce its role in housing markets and ensure Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, won’t require future bailouts.
“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said today at the conference.
My take: Fannie Mae and Freddie Mac are now being used by government to prop up the housing market artificially when we need price discovery. House price inflation adds nothing to a nation’s productivity; it is merely a transfer of income from buyers to sellers and encourages the accumulation of debt. In general, Fannie and Freddie distort markets and should be liquidated entirely. The video of Gross is below.