Do You Really Think Pimco’s Gross Didn’t Know That?

Today Bloomberg is running a piece that is proclaiming that Bill Gross is a genius for not accepting the Debt Swap on GMAC bonds.  He didn’t accept the debt swap and as a result, when the US government accepted GMAC as a federally backed bank, his bonds soared in value.  Others took $.60 on the dollar, as they feared that the government would let them go into bankruptcy.  Yesterday, I posted an article about conflicts of interest with money managers, specifically the fact that four of them are now answering to two masters - Public Sector and Private Sector.  Those four managers are, again…Blackrock (NYSE:BLK), Wellington, Goldman (NYSE:GS) and Pimco.

Bloomberg is really insulting our intelligence; if they expect us to believe for one minute that Gross and his boys didn’t know “the real deal”.  It’s my opinion that he quite likely may have known what the outcome of this situation was going to be, prior to it occurring.  It’s purely speculation.  It certainly makes one think that certainly the possibility could exist that he might have known.

It wasn’t a bad thing for the owners of the PIMCO bond funds, but…if PIMCO did know, they made a lot of money while others lost a lot.  If they did know, then you need to think about competitive issues.  If you’re investing in bonds, wouldn’t you want to have money on the side of those in the know? Is that fair to the other players?

I’m sure all parties will talk about “Chinese Walls” and how one division doesn’t talk with the other division etc. In the real world, it doesn’t always work like that.  Perhaps those that took the “cram down” might want to have somebody look more closely at whether PIMCO could have known that GMAC was going to be getting their bank charter.

The US government is paying PIMCO to manage assets on their behalf.  I would have to believe that the four asset managers have been closely involved with both the FED and the Treasury in strategising to save the nation from the economic hole that we’re in.

The headline above also reminded me of a similar headline, proclaiming what a genius John Thain was for putting together the wonderful deal with Merrill and Bank of America (NYSE:BAC).  I believe that the Fed orchestrated that deal and it was not due to any cunning wonderful business acumen posessed by either Thain or Lewis of BAC.

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