PIMCO's Gross Says Bankers Should Be Ashamed

(February 3, 2011) — Bond manager Bill Gross, the managing director of the Pacific Investment Management Co. (PIMCO), has criticized America’s culture of money and greed in his latest commentary, asserting that the US needs new priorities.

The report — titled “Devil’s Bargain” — places blame on money managers for failing to make smart decisions in regards to asset allocation. Gross further criticizes financial innovation, such as securitization, urging investors to analyze other yields and assets. “Fifty years ago, the highest paid and most prestigious professions were that of a doctor or a 707 airline pilot who flew the “golden” route from Los Angeles to Honolulu,” he wrote. “Today the yellow brick road begins on Wall Street or the City…the money is made from securitizing things instead of booting and rebuilding America. The tallest buildings in almost every major city are banks, with tens of thousands of people shuffling and trading paper for a living.”

Additionally, he warns that the US Federal Reserve’s policy of keeping real interest rates low for long periods will inflate the price of other asset classes, and thus warns that holders of US Treasury debt will earn negative returns.

Gross, who manages the world’s largest bond fund, the $250 billion PIMCO Total Return fund, wrote: “As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. Hang your heads, moneychangers.”

Earlier, in a memo to Davos participants, PIMCO’s Mohamed A. El-Erian warned that policymakers must navigate a multispeed world as short-term policy priorities conflict with longer-term priorities, noting that policymakers would benefit from a more balanced analysis of the risks and opportunities facing today’s global economy. “International forums such as Davos can help policy makers overcome these problems,” he wrote in a Bloomberg article. “There is much to be gained by focusing on the realities of our multispeed world and policy inconsistencies…Failing that, too many policy makers will remain hostage to active inertia while others will be paralyzed into inaction.”