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The Word From PIMCO

Written By Brian Hicks

Posted December 6, 2007



Here’s another opinion about home prices and the coming government bailout of the sub prime fiasco.

Pimco’s Mark Kiesel has nailed it.

From Reuters by Walden Siew entitled: US home prices may bottom out in 2010, Pimco says.

"A senior manager at the world’s biggest bond fund criticized a federal mortgage rescue plan as short-sighted and said U.S. home prices may not hit bottom until 2010.

U.S. home prices may fall as much as 30 percent from the market’s peak and likely won’t trough until 2009 to 2010, according to Mark Kiesel, a portfolio manager at Pacific Investment Management Co.

"The question is, do we do it over a period of two to three years, or do we do it in 10?" Kiesel said in an interview. "Japan chose 10, and that didn’t work so well."

Kiesel, a longtime bear on the U.S. housing market, also questioned merits of a plan that President George W. Bush is expected to unveil on Thursday to help struggling American homeowners avoid foreclosure.

"This reeks of moral hazard," Kiesel said. "This is pure politics as we enter an election year, and it’s not going to help the problem. It’s going to prolong the bubble."

Kiesel said government interference in the free market may do more harm than good.

"A government bailout which alters contractual interest payments to bondholders will fuel moral hazard problems and raise mortgage rates for future borrowers and home buyers," he said. "This is not a path we want to head down in which government intervention bails out homeowners who failed to act responsibly."