PIMCO’s handshake with Kashkari

Neel Kashkari, ex-Treasury Secretary Henry Paulson‘s pick to oversee TARP, has joined the bond firm PIMCO, the trillion dollar bond manager based in southern California.  The move comes just days after the Washington Post ran a lengthy profile of Kashkari and his life after Treasury.

Felix Salmon notes that with the move, PIMCO has cemented its status as a favorite outpost of former Washington policymakers (Alan Greenspan is an advisor there):

Pimco seems to be establishing itself as a key part of the revolving-door structure in contemporary finance: if you’re a senior government bureaucrat making decisions affecting the financial industry, there’s a good chance that if and when you leave there’ll be a job waiting for you in sunny southern California. It’s win-win for everybody: technocrats will tend to treat the financial industry with kid gloves when they’re in power, so as to maximize their chances of getting a good job upon their exit, while the likes of Pimco “make billions” as a result of doing so.

Former Washington types like Greenspan and Kashkari help PIMCO “make billions” by leveraging the relationships, influence, and access they developed in Washington.  It’s all part of PIMCO’s strategy, as outlined in this market commentary by PIMCO chief Bill Gross:

PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. [his emphasis]

How does PIMCO “anticipate, then buy what they buy, only do it first?”  If it were about reading charts, making mathematical calculations, and spotting trends, the bond manager wouldn’t have hired the king of housing bubble deniers, Alan Greenspan, who relied chiefly on his copy of Atlas Shrugged in managing the US economy for twenty years.

No, it’s about access to non-public information about what the Fed and the Treasury are planning to do.  It’s about influencing those decisions.  It’s about Greenspan picking up the phone and making a few calls.  That’s it.

PIMCO is fairly transparent about this in a June 2009 New York Times profile of Gross:

Mr. Erian points out that the firm’s executives have been members of the Treasury Department’s Borrowing Advisory Committee (along with many other Wall Street executives) for years. Its current representative, the Pimco managing director Paul McCulley, says part of his job is to ingratiate himself with officials at the Treasury and the Federal Reserve so Pimco can better understand impending policy decisions. He boasts that he is on a “first-name basis” with both Mr. Geithner and the Fed chairman, Ben S. Bernanke.

PIMCO’s efforts to “better understand impending policy decisions” are not academic, though the reporter’s language might seem to suggest it.  By cozing up to folks like Bernanke and Geithner, PIMCO’s executives are able to gain access to non-public information and exert influence over policy.

Kashkari’s hire is just the latest example of PIMCO playing the access game very well, with consequences for the rest of us.

Time for more wiretaps.