PIMCO founder and chief investment officer Bill Gross told Bloomberg that he thinks the U.S. government will have no choice but to prop up mortgage giants Fannie Mae and Freddie Mac. Bloomberg’s Shannon D. Harrington and Kathleen Hays wrote yesterday:

Bill Gross, who manages the world’s biggest bond fund, said the U.S. Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital.

“By the end of the third quarter, the preferred stock in Fannie and Freddie will be issued, the Treasury will have bought it,” Gross, co-chief investment officer at Pacific Investment Management Co., said today in an interview on Bloomberg Television. “We’ll be on our way toward a joint Treasury-agency combination.”

Gross adds to a growing chorus of investors and analysts predicting U.S. Treasury Secretary Henry Paulson will need to use his newly won power to prop up Freddie and Fannie. Freddie posted a second quarter loss that was three times wider than analysts estimated and said credit losses doubled in three months, heightening concerns it may not be able to weather the worst housing slump since the Great Depression.

Source:

“Pimco’s Gross Says U.S. Will Rescue Fannie, Freddie (Update2)”
Shannon D. Harrington, Kathleen Hays
Bloomberg, August 6, 2008

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