Pimco Boss: US Economy's One Giant Ponzi Scheme

Madoff is just a fall guy, according to Pimco managing director Bill Gross. "Madoff's scheme has a host of culpable look-alikes and one has only to begin with the mortgage market to understand the similarities," writes Gross in a slightly ranty January investment newsletter.
As the UK's Serious Fraud Office investigates Madoff's London operations, Gross's own "J'accuse" implicates everyone from ratings agencies to the auto industry to the US government... anyone using thin air as a justification for action or a basis for valuations.

"We've met Mr Ponzi -- and he is us, all of us: auto companies that siphoned sales dollars to make labor peace instead of research and design expenditures; hedge funds that preposterously billed investors for 2 per cent and 20 per cent of nothing; a President and politicians who thought they could fight a phony war for free and distract the nation's attention from $40 trillion of future social security and health care liabilities. Ponzi, Ponzi, Ponzi."
Gross should know -- he manages the world's largest bond fund. But he's not sure where bailouts will leave the US (nor are we in the UK at all clear as to where the government's measures are taking us). He was more measured last September, when he told Washington Post readers that the US government bailout would benefit Main Street, not Wall Street. "Future economic textbooks are likely to teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient over the long term when there is another delicate balance -- between private incentive and government oversight."

Still, he says, your best bet is to "shake hands with the government" -- if only because it's got the fattest chequebook in 2009.

"For now, our Ponzi-style economy and its policy remedies encourage bond investors to mimic Uncle Sam and its global compatriots. Buy what they buy, but get there first."
(Image by NotionsCapital.com, CC2.0)