When money managers get angry

Excellent rant by Pimco’s Bill Gross today against the broken Washington political system. Gross, who runs the world’s biggest mutual fund and whose words on government solvency are closely watched by the markets, loses his rag over the failure of politicians to pass sensible legislation, overcome special interests or do anything other than raise money for their own campaigns. A selection:

Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people

What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return

He’s not wrong. The system is clearly fixed to ensure representative democracy works for the benefit of the representatives, rather than the voters. But it has been ever thus; remember, before 1974 there was no Federal Elections Commission. The Union Pacific Railroad and Credit Mobilier offered straight bribes to Congressmen to grant land for the first transcontinental railway, 140 years ago; today the healthcare lobby has to channel its payments through PACs, but the outcome is much the same (potentially the regulation actually makes it cheaper to bribe Congress, by reducing the competition!).

Gross, though, is not one of the world’s premier money managers for nothing. After his extended rant at the deficiencies of Congress, he moves on to a sober discussion of government borrowing. He predicts the Fed could “exit” from its quantitative easing moves by March – following the partial exit already agreed – and that over the next several years, the US, UK and Japan will see rises of about 1 percentage point in interest rates relative to Germany. Conclusion? Buy bunds and sell gilts sounds like the obvious answer. But Gross goes a lot further – and it is doesn’t make for a nice vision for investors:

if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets

Perhaps the answer is for Gross to put some money into K Street lobbying. After all, according to a study reported by the Washington Post last year, corporate “investments” in lobbying yielded returns of 22,000 per cent – not bad, if you can overcome your moral scruples.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.


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