Bill Gross Warns of Worsening Subprime Mess

Pimco Chief Investment Officer Bill Gross told CNBC that not only will the subprime crisis continue to another two years or longer, but that it will likely worsen.

He predicts another $250 billion in loan defaults through the end of next year and accused the three major banks that wrote down billions of dollars in the third quarter, Citigroup, Merrill Lynch and Bear Stearns, of issuing “garbage loans.”

Gross said he hopes the Federal Reserve continues to cut rates so that 30-year mortgage interest comes down to 5% in order to prevent further mortgage defaults. “They do have to fight inflation, but they do have to fight deflation in terms of housing. The Fed is in a corner here,” he said.