Bond Manager Says Don't Bail Out Subprime

Bill Gross, the Pimco bond guru, is like the old E.F. Hutton: When he talks, people listen.

The question right now is whether his words always match his reputation.

Last week, Gross grabbed the headlines by warning that the housing slump could lead to devastating economic consequences. He argued that a 10% fall in prices nationwide could set off price deflation of a kind not seen since the Great Depression, while waves of mortgage defaults could undermine confidence in the financial system here and abroad.

Gross concluded by urging President Bush to launch an emergency, New Deal-style federal bailout of distressed homeowners to forestall disaster.

For an alternative view, you could talk to a less well-known bond guy, like Tom Atteberry. He's the co-manager of the $1.75 billion (CRF Quote)First Pacific Advisors New Income (FPNIX) fund. His offices, in Los Angeles, are a short drive from Gross' suite in Newport Beach.

Atteberry certainly doesn't question the depth or scale of the housing slump. He believes the market could keep falling well through next year. He successfully kept his fund clear of risky mortgage-backed paper, and he warns that it is still "too early" to start bargain-hunting.

The history of past crises leads him to believe that that moment may not come until later this fall, some time between October and December.

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