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(Reuters)   PIMCO's mutual fund made a $10 billion profit by buying huge amounts of the same MBS that the Fed bought during its "quantitve easing" program. It's total coincidence that another division of PIMCO was hired to help the fed BUY those MBS's   ( divider line
    More: Unlikely, MBS, PIMCO, Federal Reserve, mutual funds, Fed Chairman Alan Greenspan, net investment, New York Fed, Mohamed El-Erian  
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467 clicks; posted to Business » on 27 Sep 2013 at 1:03 PM (4 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»

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2013-09-27 02:20:29 PM  
1 vote:

Magorn: Debeo Summa Credo: Well, didn't everyone else know that the fed was buying MBS? Couldn't any other hedge fund or bank or mutual fund have bought such securities under the belief that the fed's purchases would drive up the price? And if the fed saw that private investors were bringing adequate demand to the market, couldn't they have pulled back and bought some other asset class instead.

Seems like a "meh" unless you are accusing PIMCO of using inside information to front run fed purchases of specific bond issues.

here's the Key, in 2009 the Fed announced it's quantitive easing program, which, as intended drove up the price of MBS's sharply.  In late 2008 PIMCO went very big on buying those MBS securities coounter-to the market at the time which was dropping them like hot rocks (which is why the Fed did what they did, something unprecedented in its history)   Slightly earlier in 2008, another division of PIMCO was hired by the Fed to map out it MBS buying strategy which was top secret at the time.  PIMCO SWEARS there was a "chinese wall" between thier brokers and the mutal fund folk, but the $10 billion profit betting contra-market by Pimco stongly suggests otherwise

If PIMCO did actually use inside information (timing of or specific issues that the fed was going to purchase) that is of course illegal.  But his just seems like dishonest yellow journalism, trying to imply malfeasance that both the supposed perpertrator and the victim deny, and stir up controversy among those who lack an understanding of the issue,

There is no evidence of illegality or impropriety in Pimco's actions. Pimco says that it kept its employees who were helping the Fed at arm's length from those investing for its funds, and that its bond-buying bet was conceived before the Fed's program was begun. The Fed says it implemented and enforced strict controls over the trading done by the firms....

Doing so was perfectly permissible under the Fed program. The central bank allowed Pimco and the other three firms to continue trading in agency MBS while some of their employees were seconded to the central bank. Contracts that the firms signed with the New York Fed prohibited the firms' traders or employees from discussing their work.

"Based on what has been shown to us by Reuters, the New York Fed has no reason to believe that Pimco behaved improperly as an investment manager," a New York Fed spokesman said.....

In the case of Pimco, the issue isn't economic or market distortion. Rather, it is the appearance of a possible conflict of interest by allowing Pimco to act for the Fed and its own investors at the same time.

Also, its worth noting that the "$10b profit" on mortgage plays that TFA speaks about isn't profit that goes to PIMCO or to Bill Gross.  It is the gain for the fund itself, which is of course owned by the 401k investors, pension funds, etc that have invested in it.  PIMCO's fees for this fund are 0.46% - so $10b more in assets means another $46m per year in fees, but TFA doesn't mention that.  They seem to want the $10b (oooh big number) to stand out as some huge windfall that PIMCO got.  Like I said, dishonest journalism.
2013-09-27 01:48:47 PM  
1 vote:

Kiler: Debeo Summa Credo: Seems like a "meh" unless you are accusing PIMCO of using inside information to front run fed purchases of specific bond issues.

That's exactly what they're implying.

and that's likely exactly what happened too.  Meanwhile, PIMCO is raping all of your 401Ks for 1-2% each for "administering" the accounts.
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