Megabanks and other large financial institutions in the United States and the people who lead them all have their own stories and monikers. Goldman Sachs has a reputation for providing a steady stream of treasury secretaries through the revolving door between New York and Washington, earning it the nickname “Government Sachs.” Steven Mnuchin, Henry Paulson, and Robert Rubin all made the transition from Goldman to treasury secretary in the past few decades. Many books have chronicled the history of Goldman Sachs, whose founding dates back to the 1860s.

In her new book The Bond King, Mary Childs chronicles PIMCO, a large financial institution in its own right that was founded during the 1970s. She has plenty of material to relate, notwithstanding the firm's relatively short history. Childs is cohost of National Public Radio's Planet Money podcast and previously worked at Barron's and the Financial Times. The Bond King is her first book.

My previous knowledge of PIMCO came from my familiarity with the "Big Three" public financial figures who worked there. Bill Gross, who is the central figure of Childs's book, was tagged with the moniker "the bond king" by Fortune in 2002. He is familiar to the public because of his many appearances on Bloomberg, CNBC, and other financial networks. Economist Mohamed El-Erian has also been active on the business TV circuit, was under consideration for vice chairman of the Federal Reserve during the Trump years, and is more recently known as a harsh critic of the Federal Reserve's handling of monetary policy in the wake of the pandemic. Neel Kashkari is familiar thanks to his stint as the bailout czar under Paulson during the Great Recession. I never followed closely their work at PIMCO, but Childs does a good job of weaving a compelling narrative to fill that void.

Gross / Gross's founding and building of PIMCO is the major narrative of the book. PIMCO is not a bank and does not primarily focus on trading stocks; rather, its focus is on trading in the bond (or fixed income) market. As Childs explains:

Normal people don't like to talk about "bonds." … We like to talk about stocks, which are also claims on a company but are riskier, more whimsical. People think stocks are more fun…. [In contrast, bonds] are mostly bought by sophisticated, institutional investors—big kids.

It all started during the early 1970s at Pacific Life Insurance, where Gross landed his first job after graduating from business school. His initial focus was on actuarial science, assuring that Pacific's bond portfolio was of the proper size and duration to pay off life insurance claims when they came due.

Within a few years, a more appealing possibility came into view: not only to sit on those bonds until the proceeds were needed, but also to trade the bonds. Toward that end, Gross's boss "gave him $5 million to play with." The platform for that trading became Pacific Investment Management Company (PIMCO). Eventually, Gross and his colleagues not only managed bonds for Pacific Life, but also for clients of their own, including AT&T and RJ Reynolds Tobacco.

The inflation of the 1970s was a good time to start such an operation, as older bonds were eroding in value because of their woefully low, pre-inflation coupon rates. Gross and his team focused on "making money buying the better bonds and selling the worse ones." As the 1970s came to an end, the ups and downs of the early 1980s, with a double-dip recession and taming of inflation, "kicked off a multi-decade bond rally."

Gross built a team and Childs traces their personalities and quirks in the early chapters of The Bond King. Before there was CNBC and Bloomberg, there was Louis Rukeyser and public television's Wall Street Week. Gross was Rukeyser's go-to guest when he wanted to talk about the bond market, making Gross an industry celebrity. When cable exploded, he seamlessly transitioned to the new medium and can still be seen today, weighing in on the bond and broader market issues of the day.

Childs's narrative for Gross reveals two personalities. First of all, there is the swashbuckling capitalist of the bond market who takes risks, bets big money on contrarian trades, and wins. There was no bigger contrarian trade than his bets during 2006 that the mortgage market would falter. For Gross, the evidence of weakness in the mortgage market began to emerge in 2005 with talk that the market was "frothy" and that a "housing bubble" was building. He dispatched members of his team to initiate boots-on-the-ground analysis of individual housing markets. They were told of the heavy reliance on interest-only, adjustable rate, and "affordability" products that helped drive the increase in prices. By May 2006, PIMCO's official newsletter explained that housing was "slowing under its own weight." Talk of an "end of the housing boom" and the housing market being a "disaster-in-waiting" increased in volume and PIMCO began to shift its portfolio accordingly.

The market broke during late 2007 and early 2008, and Gross the capitalist morphed into Gross the interventionist. On a CNBC appearance with anchor Erin Burnett early in 2008, he was already "urging the government to inject money into the system." While the major fund that he managed (the Total Return fund) had 60% of its holdings in Fannie Mae, Freddie Mac, and other government-sponsored enterprise bonds, he urged that what to that point had been an implicit government guarantee to back these securities become an explicit guarantee.

He relied on the Chicken Little language so typical of that era to emphasize his point: "Unchecked, … [this could] turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami." Gross admitted, "You can say that I'm talking my book"—that is, he had a conflict of interest in urging a policy that would benefit him financially. Paulson's Treasury Department ultimately put together a plan to bail out Fannie and Freddie, as Childs explains: "The government was doing exactly what Bill Gross had wanted, had asked for. His gamble would pay off." Notwithstanding Gross's love of government intervention, he fancied PIMCO as a company that "efficiently allocate[s] capital around the U.S. and the world. We are in the business of capitalism."

El-Erian and Kashkari / El-Erian's "first stint at PIMCO" started in 1999 when he was brought on to manage the emerging markets team. The fund he managed generated returns of nearly 30 percent, in large measure because he eased out of Argentina investments just as they were on the verge of default in 2001. He departed PIMCO in 2006 to manage Harvard's massive endowment fund, but he was lured back to PIMCO by September 2007 to a role with Gross as co–chief executive officer and co–chief investment officer, making him the heir apparent if Gross were to retire. El-Erian's remit was simple: "Find where PIMCO could expand."

El-Erian's personal lawyer played an important behind-the-scenes role in the development of The Bond King. Childs takes several breaks from her tale to clarify the lawyer's position on statements in the book. For example, she explains that "according to people familiar with the conversations, El-Erian had demanded co–CEO, too" when he returned to PIMCO. However, El-Erian's lawyer states "that it was Gross's idea, as part of a succession plan." That makes me wonder, were Childs and her publisher under threat of a lawsuit if they did not give El-Erian's side of the story on every matter of controversy she raises in The Bond King?

To me, Kashkari always seemed way over his head as a newbie policy guy at the Treasury Department. He "cold-called" Paulson to come onboard as the financial crisis was beginning because "he wanted to learn how government worked." He presented a bailout plan (TARP) to Paulson involving asset purchases, but when it became obvious that would not work, the program turned on a dime and became a capital injection program.

Childs explains that Kashkari was similarly over his head at PIMCO:

If Kashkari's time at Treasury had seemed to some a step beyond his abilities or experience, this new role was another step farther. He had never worked at an asset manager. He would lead building a new equities business without ever having managed an equities business or been an investor at all.

But that did not matter because, for some reason, "Gross had been impressed by [Kashkari]" and the hire reinforced a desired "cozy relationship with the government." Kashkari did not fit the PIMCO mold and lasted all of three years before departing to "explore returning to public service." A failed run for governor of California and ultimately a position as president of the Federal Reserve Bank of Minneapolis ensued.

Losing it all / Gross certainly received the accolades of his industry. He was a three-time winner of the Morningstar Fixed Income manager of the year award based on best performance for clients and was later named the fixed income manager of the decade in 2010. PIMCO's assets under management closed in on the $2 trillion mark. In the post–financial crisis era of tightened regulation through the Dodd–Frank Act, PIMCO dodged a bullet when it avoided designation as a systemically important financial institution. Heavy lobbying by PIMCO helped.

But as the subtitle of the book indicates, Gross's empire began to erode. His management style of scrutinizing his employees created a pressure cooker environment—what Childs describes as "miserable," a "scorching office climate…. The pitch-black early mornings, the politicking, the disrespect, the never-ending emails from Gross and El-Erian and on down the line." Some employees stayed for the "fatter paychecks," but many headed for the exits.

By 2013, the relationship between Gross and El-Erian

was deteriorating. Things were getting increasingly tense…. It felt now like Gross and El-Erian no longer saw eye to eye on the firm's direction, or over trades and strategy, or whom to hire, or what new products to push…, all against the backdrop of clients pulling their money.

Possibly worst of all, Gross "was acting erratically, and it was threatening to hurt the firm." Early in 2014, El-Erian informed the PIMCO executive committee that he was leaving. The Wall Street Journal had a front page spread on the exit. Childs succinctly summarized the contents of the article: "Bill Gross was a terrible asshole." This was a shock to the financial industry given that they had only seen "Gross's folksy TV persona."

Gross then seemingly became paranoid that others at PIMCO were trying to sabotage him. His attempt at a "media tour" to salvage his reputation failed miserably. The saga moved quickly after that, with Gross and PIMCO's executive committee each trying to gain the upper hand.

Gross proposed a way to step back from his leadership role and eventually exit after lingering in a "sidecar" role, contingent on the departure of his perceived adversaries. The committee pushed back, saying his departure time frame was too long and he had lost the trust of his colleagues. The focus turned to firing him outright. Three members of the senior management team threatened to resign. Gross started to reach out to other trading firms. The executive committee proposed a short fuse on a "retirement," with no long period for him to linger. Gross ended the suspense with a surprise announcement that he would depart for Janus Capital Group on September 26, 2014.

The Bond King is an engaging read. A few sections drag given the technical discussion involved, but given the topic that is unavoidable. I hope to see more historical chronicles on major financial institutions from Childs in the future, given her demonstrated ability to tell a story and to mix in humor at an opportune time (like the ongoing commentary from El-Erian's lawyer).