Bill Gross passes on PPIP

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Poor Bill Gross! Even after the New York Times devoted pages of its magazine to a puff piece about him and his upcoming role in the latest government project to further enrich a few dozen Wall Street billionaires, he still did not make the cut. But he claims that his $747 billion bond fund decided to pass on participating in the Public Private Investment Partnership (PPIP).

I had the pleasure of receiving an email from Gross in February after I appeared on a TV program to question why he was able to both trade in government and GSE bonds, even as he managed government programs designed to prop up the debt markets. This TV program came after a Fortune article, in which I raised questions about how much money he was making off this dual role.

Gross kindly agreed to offer an interview, during which he commented on his views of the stock market. As for the PPIP -- which the Times seemed sure he'd win in June -- Treasury named nine firms, including BlackRock (BLK), Invesco (IVZ), AllianceBernstein (AB) and TCW Group for the scaled-down program -- $40 billion vs. the original $1 trillion. But not Gross's Pimco, which said it withdrew its application in early June as a result of "uncertainties regarding the design and implementation of the program."

Thanks to a change in accounting rules -- which makes it possible for banks to decide how much their toxic waste is worth based on their own assumptions -- PPIP is not really necessary. That's because the new accounting rule -- FAS 157-e -- is letting banks write up the value of their mortgage-backed securities so they can show non-cash profits on them.

Meanwhile, questions remain unanswered about Gross. How much profit did Pimco make from trading in Fannie Mae and Freddie Mac securities as it was advising the government? Having won a role in advising the government on its $251 billion Commercial Paper (CP) and its $500 billion Mortgage-Backed Securities (MBS) programs, how much does Pimco get paid for its advice? How much information from that advisory role does it use to trade in those securities?

I don't know why Pimco did not win a role in PPIP. But I do know that Gross declined to answer these questions in a way that I could understand. And that lack of openness does not look good to me. Perhaps the government agreed.

Peter Cohan is president ofPeter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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