Bill Gross on the financial crisis

Morningstar recently asked bond king Bill Gross about his thoughts on the financial crisis:

Gross was encouraged that the passage of the Treasury Department's proposed $700 billion Troubled Asset Relief Program would pay off in a few ways. In particular, he was and remains confident that the acquisition of troubled mortgages by the United States government will ultimately produce profits for Uncle Sam. As long as the government picks them up at the right price—and there's a lot of room for error given how cheaply subprime mortgages are currently being marked—returns of 10% or more are well within the range of possibility according to his analysis.

But the main reason for his advocacy of the plan is that he believes it will be critical to avoiding the catastrophic outcomes of inaction that would have included massive job losses, plummeting economic productivity, and waves of bankruptcies. In fact, in the absence of an effective government policy response, Gross has described a "daisy chain" of trouble snowballing from margin calls, disappearing leverage, and institutional failures that would roll through the financial, housing, commercial real-estate, stock and bond markets. Meanwhile, he also sees the TARP as a catalyst that will put banks in a better position to make loans. ...

With the specter of such massive government spending on the horizon, though, we pressed Gross for more thoughts on the future. ... The U.S. has been living on the creation of more and more debt for some time, activity that can cheapen the value of our currency versus those of more fiscally restrained nations, notes Gross. Unless something changes, he argues that we can't expect the U.S. dollar to maintain long-term strength, a point that he and PIMCO have been making for many years.