TPMMuckraker

PIMCO Manager On Being ‘Fourth Branch’ Of Government: Who, Us?

Moe Tkacik April 7, 2009, 2:33 PM

A mere fortnight ago Bill Gross, who manages the world’s largest bond fund PIMCO, was singing the praises of the Treasury Department’s newly-unveiled Public Private Investment Program in the media, which the media in turn credited for the stock market rally that immediately followed. But in any event, Gross’s endorsement of the plan hardly a surprise, since 1. PIMCO holds more than $118 billion in mortgage-backed securities 2. including one fund that has lost 34% of its value since its 2007 inception and 3. oh yeah, the plan was in part Bill Gross’s idea. By the time the week was out PIMCO was being dubbed the fourth branch of government.

Now PIMCO is not very subtly distancing itself from the PPIP, which has only gotten less popular as its details have emerged. This morning, on the heels of yesterday’s stock market selloff that accompanied the Treasury Department announcement that it was extending the deadline for PPIP applications and clarifying that applicants would be considered “holistically” (i.e. that demonstrated ability to raise $500 million requirement is now more like a rule of thumb) PIMCO Chief Investment Officer Mohammed Al-Arian went on Squawk Box to talk markets with celebrated (by CNBC anyway) stock picker Mario Gabelli, who couldn’t resist getting in a dig at PIMCO for the plan’s self-defeating “competitive restraint.” The fun starts about 7:54 in, transcript after the jump.

GABELLI: So what? If you take three or four years of slow steady recovery. So you don’t have a rapid increase and the Fed can adjust to all this stimulation they’re putting in the system and they don’t make the miscalculation of 1923 in germany…this is good! if the Dow does nothing for five years, who cares?
AL-LARIAN: How many investors are still in the game if the dow does nothing for four years?

GABELLI: The fewer the better! The fewer the better! Many can come into the business…
You know, you guys put a wonderful competitive restraint, with this PPIP…

AL-LARIAN: Who’s ‘you guys’?

GABELLI: Those big five companies that have been anointed. [Ed note: PIMCO and four other large money managers reportedly consulted with Treasury to draw up the PPIP, although Gross was the most prominent money manager involved not affiliate with an investment bank.]

SQUAWK BOX ANCHOR CARL QUINTANILLA: You know, the “chosen ones.”

AL-LARIAN: I’m not sure who’s chosen whom.

GABELLI: Yeah yeah, you need a ‘certain scale.’ But who set up those rules? The guys with the scales.

AL-LARIAN: No…

GABELLI: Oh, right….

Essentially Gabelli is rousting Al-Larian for being “too big to fail.” As long as PIMCO is big enough to advise the government to pursue a plan that awards extra benefits to PIMCO, they shouldn’t be so sensitive to a short-term market backlash — in fact, they might even think about advising the government to pursue a plan that looks out for the market five years from now.