Mar 10, 2022 - Economy

How Pimco won the Global Financial Crisis

Courtesy: Flatiron Books

Courtesy: Flatiron Books

When the world economy creaked and nearly collapsed in 2008, one of the biggest winners was the asset manager Pimco, and its larger-than-life chief, Bill Gross.

  • That is one subplot in Mary Childs' vivid tale of the bond manager and his empire, "The Bond King," out next week.

As early as 2006, Pimco's leaders saw the problems emerging in subprime lending and the housing price bubble — and positioned their portfolio accordingly. But things got really interesting as the bubble started to pop.

What happened: Over the course of 2008, its leaders argued in TV appearances and elsewhere that the Treasury would need to backstop debt of Fannie Mae and Freddie Mac.

  • Not coincidentally, Gross had put 60% of his signature fund in those securities. In September 2008 the Treasury did what the Pimco team had advocated.
  • Following the September 2008 bankruptcy of Lehman Brothers, Pimco drew a line between assets that were inside the "umbrella" of federal support, including the big banks, and those that were not. It bought up debt of the former and avoided that of the latter.

Then, when the federal government went to implement its bank bailout program, Pimco was one of the few firms with the manpower and know-how to carry it out. So the government hired Pimco to administer the programs.

The bottom line: "Whatever the government touched was becoming gold," Childs writes. "So, whenever Pimco got visibility on what the government might need to buy, it could easily pick up the spread between not-gold and gold."

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