Pimco's Bill Gross Bids Farewell To 'Old Capitalism' When Bill Gross talks, the government listens. As manager of the world's largest bond fund, Gross explains what the government needs to do to tackle the financial meltdown. He also says capitalism, as we've known it for the past 30 years, has changed forever.
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Pimco's Bill Gross Bids Farewell To 'Old Capitalism'

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Pimco's Bill Gross Bids Farewell To 'Old Capitalism'

Pimco's Bill Gross Bids Farewell To 'Old Capitalism'

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Bill Gross is founder and Managing Director of Pacific Investment Management Company, Pimco. He manages its Total Return Fund, that's the largest bond fund in the world, attracting investors who are looking for a stable return on their investment at minimum risk. Bill Gross, welcome to Day to Day.

Mr. BILL GROSS (Managing Director, Pacific Investment Management Company): Thank you, Alex. It's nice to be here.

CHADWICK: I think this financial meltdown crisis, whatever you want to call it, it's been going on about a month. How do you gauge how the government is doing in response?

Mr. GROSS: Well, the government, it's been a little late and a little ad hoc, you know, beginning with the bailout of Bear Stearns. You know, the solutions were simply antiseptic, one-off types of solutions that ultimately led to bigger problems, and now, of course, in the last few weeks, the potential for one giant massive solution, but the ad hoc nature of it and the timeliness of the response has been a little lacking, in my opinion.

CHADWICK: Well, now, we have this $850 billion rescue plan, $250 billion of that going directly into banks. That's something that you have called for in the last month. The government is responding. Still, in the markets, you don't see a sense of calm, and you write about that. America is afraid, you say.

Mr. GROSS: Yes. America's afraid. Investors are afraid, and, you know, the delicate combination between Wall Street and Main Street has reinforced the fear of each.

CHADWICK: From what I read, a fundamental source of the fear is this continuing uncertainty about what assets are worth. You have offered to help the government with that? You said you'd do it for nothing. Have you heard back from anybody at the Treasury? Have they called you up to say, gee, great, thanks, let's go to work?

Mr. GROSS: Well, there have been discussions, Alex. We haven't had any final decision. We hope to hear, I suppose, within the next 24 to 48 hours, and so...

CHADWICK: So, what would you do?

Mr. GROSS: Since we haven't been selected, we're not quite sure...


Mr. GROSS: What the Treasury would want us to do, but I would assume we would assist in terms of helping to devalue and to select the appropriate mortgages and subprime assets that would be purchased, and that could provide a value to the Treasury and ultimately, of course, to taxpayers.

CHADWICK: You offered to do this for nothing. Is that offer still out there?

Mr. GROSS: Of course.

CHADWICK: You manage, well, you did manage $720 billion in assets. I'm not sure your portfolio's still worth 720. A month ago, it was.

Mr. GROSS: Well, it's worth more now because we've grown and taken in additional assets, not because our assets have miraculously gone up in price.

CHADWICK: And you are, you're the founder and the co-chief investment officer of this company?

Mr. GROSS: Correct.

CHADWICK: So, when you write in your - I'm going back to this - your investment outlook essay, Americans don't really understand Wall Street. They may never understand Wall Street. And then you go on in the next sentence to say, oh, and by the way, yours truly, meaning yourself, is learning every day, discovering every day what Wall Street is. I mean, what the heck are the rules now, and if you don't know, who does?

Mr. GROSS: Well, the rules are changing. The balloon was being expanded, and now, the air has been taken out of the balloon, and so the rules are changing in terms of what becomes a safe and a relatively riskless position in this rapidly de-levering world.

CHADWICK: Do you think capitalism is fundamentally changed, and if so, how?

Mr. GROSS: Oh, yes. You know, capitalism evolved into the Wild, Wild West form of capitalism in which regulation was relatively lax, I mean, which leverage in borrowing produced the combined phenomena where, you know, everyone assumed that prices of everything would always go up and never go down. Witness the phenomena with housing prices.

Now, all of that's changed. We've understood that there's a need for regulation, for control in terms of lending, and for an assumption of reduced expectations in terms of return. And so, yeah, capitalism as defined over the past 10 or 20 years, in which prices only went down for a year or two, and then they snapped back up and reached for accelerated and new highs, those days are disappearing quickly.

CHADWICK: Bill Gross is Managing Director of Pacific Investment Management Company, which has more than $720 billion of investments. Bill, thank you.

Mr. GROSS: Thank you very much, Alex.

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