Just another Reality-based bubble in the foam of the multiverse.

Thursday, December 31, 2009

CashN'Carry shakes hands

Just how fast can the revolving door spin?

...A onetime investment banker at Goldman Sachs, Mr. Kashkari became an instant celebrity in October 2008 when he was tapped by Henry M. Paulson Jr., then the Treasury secretary, to run the Troubled Asset Relief Program for banks. He was christened “the $700 billion man” for overseeing such a huge amount of banking aid.

...on Dec. 14, he went to work as head of new investment initiatives at the Pacific Investment Management Company, or Pimco, the powerful bond investment company based in Newport Beach, Calif., whose top executives have boasted of their access to government officials. Alan Greenspan, a former chairman of the Federal Reserve, is among its consultants.

...even though Pimco was not a recipient of government aid, Mr. Kashkari’s career move raised eyebrows. Bloggers joked about how — in their view — he had all along been doing the company’s work in Washington.

During the crisis, William H. Gross, the founder and co-chief investment officer of Pimco, who is known for his witty letters to investors and his appearances on CNBC, frequently offered advice to the Treasury about how to handle the bailout.

At the same time, Pimco’s publicly stated strategy was to invest money in areas that would benefit from the government’s rescue efforts. The company called this its “shake hands with the government” plan.

The strategy paid off. The company’s flagship Total Return Fund turned in a strong performance in 2008. The fund’s Class A shares, available to individual investors, were up 4.3 percent — nine percentage points ahead of comparable bond funds, according to Morningstar. And by late September 2009, Pimco’s assets under management had swelled 32 percent, to $940 billion, from the end of 2008.

Outsiders consider Mr. Kashkari’s addition a natural strengthening of Pimco’s ties to government.

“Kashkari brings a great deal of potential benefit to Pimco in terms of government knowledge and connections to both parties,” said Douglas J. Elliott, a Brookings Institution fellow and former managing director at J.P. Morgan. “He understands what the government is likely to do and has a good understanding of the financial sector. So I can really see why Pimco would want him.”

...Mr. Kashkari left Goldman Sachs to become a senior adviser to Mr. Paulson in June 2006. Early on, he worked on housing issues. The people with knowledge of his employment search said that Mr. Kashkari met Mr. Gross while touring the country with the Treasury secretary in December 2007 to assess the country’s troubled housing market.

Several former Treasury officials said Mr. Gross had frequently been in touch with Mr. Kashkari and others in government about various initiatives. None of those officials or others suggested there was anything improper about those contacts.

“Gross was one of those guys, along with Warren Buffett, who were really interested in trying to give us ideas and be helpful in resolving the crisis,” said Robert F. Hoyt, a former Treasury Department general counsel under Mr. Paulson. “They would send memos to Treasury. They weren’t ideas we ended up implementing, but they were interesting.”

It was also hard, however, not to notice that Pimco was a direct beneficiary of the Treasury Department’s actions. In 2008, when it appeared that Fannie Mae and Freddie Mac might fail, Mr. Gross saw an opportunity.

He moved Pimco’s flagship Total Return Fund heavily into mortgage-backed securities guaranteed by the two agencies. Then he vociferously advocated for the government to rescue them during television appearances on CNBC and elsewhere. On Sept. 7, 2008, the fund’s value soared by $1.7 billion when Mr. Paulson announced the government takeover of Fannie Mae and Freddie Mac. As part of his government duties, Mr. Kashkari worked on that rescue effort.

Mr. Gross was also a strong supporter of the troubled asset program, originally envisioned as a way to purchase impaired assets from the nation’s ailing banks. He praised the plan on television and in a newspaper op-ed article, and he even offered to manage the government program at no charge.

Mr. Kashkari backed the asset purchase plan. Ultimately, though, Mr. Paulson decided to invest the government funds directly in the banks, considering it important to stave off disaster. Mr. Kashkari hired more than 135 lawyers, compliance officers and former bankers to execute the plan...


For the greater good, of course.

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