The Bond King

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S1: Hello and welcome to the Bond King episode of Slate Money. Your guide to the Business and Finance News of the Week and your Guide to the Book of the Month. Mary Child is Bond King. I am Felix Salmon of Axios. I’m here with Emily Peck of Axios.

S2: Hello. Hello. Hello.

S1: And we are here with the woman herself, the one and only Mary Childs. Welcome, Mary.

S3: Hi. Thank you for having me.

S1: You have finally birthed this book after many, many years. It is a fantastic book. You have written all about PIMCO and Bill GROSS. And we are going to talk about your book. We’re going to talk about claims from Grimes and the other kind of white collar alleged criminals. We are going to talk about midtown Manhattan real estate, commercial real estate. We have a Slate Plus segment. If you are on the fence about whether or not to be a Slate Plus member, this could be a good time to pull the trigger. Subscribe to sleep last because you get to learn all all of the juicy backstory about how this book came together. It’s pretty juicy. It’s all coming up on Slate. Money.

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S3: Brown, brown, brown. Farrell. You know what I mean?

S1: So Mary Giles, I have to say, it has been a long time since I devoured a book as just assiduously as this. I opened it up and I couldn’t. It’s one of those dry nonfiction books about a bond fund manager. And like, it’s one of those books which for most people, how could you even want to pick it up? But once I got into it, I was completely gripped and I love it and congratulations and well done. So I started off with that.

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S3: Thank you. I read into that a lot of people are like, I should be this way and I’ve forgotten the I don’t know how to pitch. So I’m like, It’s really good as why I don’t. Bonds are important.

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S1: But I will say that I am like the absolute sweet spot of the target audience for this book because I’m in it. PIMCO No, no. And they even make a couple of cameo appearances. But I have been obsessed with PIMCO for 20 years now, and this really helped me to understand a lot of what I was observing. And I think we should start really with this whole question of why is PIMCO so important? Why is PIMCO so interesting? And what you did in this book, which I never realized, is you basically said. It’s because Bill GROSS more or less handedly invented active bond funds, which is kind of mind blowing. And like we have all of this incredible stories about once he’s successful and once he’s a billionaire and all of his crazy and his things. But like the guy invented active bond funds. And how much money is in active bond funds today? Like it must be over $10 trillion.

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S3: I don’t know the figure, but it’s yeah, it’s a lot.

S1: It’s such an inherent part of the entire financial universe that it’s almost. I can’t even, like, get my mind around the world where it didn’t exist. But can you tell us a little bit about what is an active bond fund and why was it such a good idea?

S3: Yeah. So the idea here is that like it is almost unfathomable to us today, but it when Bill GROSS started his career, bonds were not traded. You just kept them and you clipped your little coupon. You know, you send your physical coupon in for an interest payment, but you didn’t really do much more than that. And when Bill started his career, inflation was really high. So the value of those bonds just sitting in the vault, those were getting eroded and they were just kind of losing value by sitting there. So there was this really compelling argument by Bill and some of his cohort that it made a lot of sense to try to sell those bonds. Maybe somebody wants to buy those at a discount and I’m free to go buy a new better bond. You can think about this as you know, all of a sudden it becomes like the stock market and you can pursue price appreciation, which was a it’s just mind boggling but a radical concept at the time. And then, you know, you combine the regular old interest payment stuff and the regular old getting your money back at the end, plus price appreciation. And that is total return.

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S1: In other words, what we have is the thing that governs investing in every other area of the investing world, which is buy low, sell high. Never existed in bonds before bill growth came along. It was buyer power buy at 100 when the bond is issued and then have all of the coupons and principal get paid back to you. And then as you’re getting the coupons and the principal just re-invent them in, reinvest that money in new bonds at issue at par and hold to maturity, which in the aggregate, if you look at the entire world of bond issue is in bond investors. That is still what happens, like the bond investors will trade the bonds between them. But in aggregate, that’s what happens is the issuers issue or the issue, the bonds, and then they pay them off at maturity. So what Bill GROSS did was he and he added a layer of basically a zero sum game to this. He said by trading the bonds and getting in and out of the market and trying to buy low, sell high, I am going to be able to get excess, extra excess returns, total returns, and someone else is going to like lose money compared to if they just did a buy and hold strategy. So who who were the chumps? Who are the people who lost money?

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S3: I know it’s confusing, right? It’s like, why would you buy the bond that’s just sitting there losing value? But, you know, if you’re selling it, there’s always a price, right? There’s a there’s a way for everyone to be happy. And like, maybe they have different priorities. Maybe they’re like, I don’t feel like messing around with new bonds. I’m tired, you know, I don’t know what their problem is, but maybe they have a shorter time horizon and they want a bond that’s going to mature in seven instead of ten. Or maybe that, you know, there are a lot of different different ways that this would work, but the market always finds the price. Right. So the idea would be that you would just sell it where the next person is going to be happy or happy enough.

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S2: How did Bill Gross’s innovation, how did it line up with what was happening with mortgage securities?

S3: So they were also enormous and early in mortgages. And there’s this story that I get really hung up on that is impossible to explain in brief. So I’m going to not do it here, but it’s extreme. It’s like extremely complicated trade on a mortgage future, like one of the first mortgage futures. And basically that was like this moment when PIMCO puts themselves on the map as being scary smart and being this like a force to be reckoned with in trading that you’re not going to know that they ripped your face off until four months later when you’re like, Whoa, what? So, yeah, the the innovation there. I mean, mortgage backed securities are more complicated and do intimidate people. And also the market tends to mispriced things or can mispriced things pretty easily in that market because of, you know, negative convexity and the kind of quirks of the product. But PIMCO was just comfortable. They just like wanted to they just were early to it and realized that other people were mispricing things and profited from that mispricing for decades.

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S1: And yeah, that’s the great parts of the book own well done with that in the book and I’m not going to try and explain it either, but there is this wonderful scene where like these PIMCO executives are literally walking into bank offices in Chicago saying they hand over your cheapest to deliver bonds. And they’re like, We don’t have enough of them. You’re just going to have to have the more valuable bonds instead. And the bingo people are doing little happy dance and they’re saying, we’ve got an extra 25 basis points in Alpha.

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S3: Yeah, yeah. I remember like that yielded $70 million is enormous and extremely difficult trade and they’re like, I promise you, was a lot of money at the time. It was a lot of money.

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S1: But the one that really jumped out to me and the place where. It wasn’t a zero sum game and they really did generate Alpha with something which I totally forgotten from 2008, where they built up a locking percentage in a g mach bond, which we need to sort of very briefly explain that G Mac was like the financing arm of General Motors and wanted to restructure its debts. And PIMCO by 2008 was this massive, multi-trillion dollar bond giant. And what generally happens in the bond world is that you have when there’s a big bond restructuring, the big bond giants like BlackRock and PIMCO, they go along and do the restructuring. And what they do is they need to fight the the hedge funds and the super aggressive holders who are like, no, I want to hold out for power and and they wind up maybe getting paid off or something like that. In this case, it was PIMCO, like the big lumbering PIMCO who was like, We are not going to let you restructure the bonds. You’re going to have to declare bankruptcy. And if you’re not going to declare bankruptcy, we want you to pay us 100 cents on the dollar. And they basically played this game of chicken with the US government, which had taken over the car companies at the time when the US government blinked was like, Holy fuck, yeah. Like PIMCO is not meant to behave like that.

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S3: Yeah, like they’re not they’re acting basically like when you’re describing these like normal bond swaps and restructurings and, you know, compromises between different stakeholders like this is normal in the world of distressed debt investing. You know, when you have these vicious hedge funds stabbing each other and private equity funds and they’re all like, it’s just a bloodbath. And it’s like, you know, kind of fun to write about all that is not supposed to happen in mutual funds with the US government, but that is radical. They were just like, Oh, did you need 75% agreement? And they’re like, Right. They’re just the person that would make it over that threshold of 75 that would tip the U.S. government over the 75% threshold that they were, you know, had had delineated for this swap. And PIMCO was like, oh, unfortunately, that’s just not going to work for us. We’re just not I’m sorry if I misled you earlier and said that it was okay. I was. I’m so sorry for that misunderstanding. It’s not okay. And they just you’re right.

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S2: They play chicken and they win.

S3: It’s insane.

S2: Can you explain a little bit more of that for the listeners? Not for me, yeah, definitely. For me.

S3: No. So basically they needed to make needed to raise money. You know, the government was saying that you need this like find this like a capital infusion and you need to convert to a bank holding company. And the path to do that was to raise money, which meant that they needed to get bondholders to convince enough bondholders to swap their bonds for equity. And for that they needed 75% of those bondholders to agree. And again, this is normal in like restructuring and corporate restructuring and distressed debt investing. And this it can get like super gnarly. But again, this usually doesn’t happen when everyone’s like at the table trying to come to an agreement at a crisis, whatever. So PIMCO owned a very large chunk of those bonds, and Jack was offering $0.60 on the dollar. And PIMCO’s like 60. That seems low to me. I don’t I’m just doing the math and that’s less than a hundred. Do you mind like and just said no. And they previously had, you know, been making sympathetic noises. So I think Jim and, you know, everyone trying to get this deal done, they thought that they had PIMCO on side and they just didn’t. So eventually the government just gave up and said, okay, you can convert to a bank holding company anyway. And, you know, PIMCO got its money.

S2: And that was one of Bill Gross’s like, ingenious things that he did was sort of front run the federal government during the crisis, right?

S3: Yeah, exactly. They called it. He wrote an investment outlook that was like public that said shake hands with the government. Yeah. There were not at all like this was very out in the open, very like they were saying you should do it to, you know, just figure out what the government’s going to buy and buy it, but get there first. So, I mean, if you want to think about it as like levying attacks on the U.S. government just by front running. Yeah, no, that wouldn’t be wrong.

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S1: Is that bad?

S3: It’s a good question. I mean, it’s savvy. It’s like it’s so hard to kind of make a moral judgment about these things where I was talking to somebody yesterday about how like, you know, in the complicated Geneva thing, it’s like the fundamental premise of the trade was that there was a flaw in the contract, but there’s no mechanism to say, excuse me, you have a bit of a problem in your contract. I just want to point out that your contract’s not going to work. The only way to do that in financial I mean, I guess you could call them and say that. But the real way to to show that there’s a flaw in a contract is to break it, is to do what PIMCO did and just exploit the bejesus out of the flaw to great profit. So, yeah, I don’t know. It seems a little I don’t think I would have the stomach for it.

S2: But in the crisis, PIMCO was kind of inflating the value of the assets that the federal government would then, by which I mean, when I say it out loud, I’m like, that seems wrong, but definitely seems wrong. But I mean, maybe they were making a better market for things than the federal government ultimately made money on that stuff. Right. And it’s proven to be like the strategy because in the past, in 2020, that like we just buy bonds, now the federal government is buys corporate debt. Now it’s like the thing to do. And that’s in part because of Bill GROSS.

S1: Well, I mean, I think I think one of the things that happened is the you know, in in the sort of pantheon of great financiers, when I was coming up as a young, you know, green journalist, everyone would think about George Soros breaking the Bank of England. Right. And there was this big fight between George Soros and the Bank of England in 1989. And then eventually George Soros won and the Bank of England had to devalue the pound and George Soros made his first billion. And everyone’s like, wow, you know, a hedge fund can beat a central bank. Right? And that was kind of in everyone’s mind is the model for like how to make huge amounts of money in financial markets. Then PIMCO comes along with the exact opposite, which is don’t fight the Fed, which is just work out what the Fed is going to do and then just add all of your firepower to whatever that firepower is and work with them, but just get there first. And that is and you can make just as much money that way without being antagonistic at all.

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S2: Mm hmm. Right. They’d get there first. They buy the stuff that they know the federal government is going to want to buy. And so then the federal government has to pay more for the stuff. They’re leeches, basically.

S1: And the returns you get and this is the thing about bonds, the returns you get doing that. And when Bill Gross’s a legendary bond investor and when, you know, bond investors talk about like that, their greatest hits, as Mary says, they’re tiny. They’re measured in basis points. Right. Like George Soros with his bet on the pound, could make, you know, I don’t know, 600% or something in the space of a week because he could lever up and make this huge bet. You could never do that by, you know, with the don’t fight the Fed strategy, right? With the don’t fight the Fed strategy, you get an extra, you know, five basis points. But if you outperformed the market by five basis points, you are God.

S3: Yeah. And you’ve actually hit on what I think is the real genius here. Like, yeah, it’s a great trade, but throughout the crisis they were doing a much more conservative strategy like a lot of people saw the crisis coming. Right. You know, you have John Paulson, Michael Burry, we all know these like boldface names. But basically, like, if you think about these these people that we think of as heroes who saw the financial crisis coming and treated it well. So many of those trades were incredibly risky, right. They structured them in such a way that if the timing had been off by like a minute, they would’ve been wiped out or their investors would. And if you think about how PIMCO did it, they were way more conservative. Right. And you see them ramping down on risk going into the crisis and then reaping the rewards of that, being able to buy when everyone else was panicking. And that actually like. So they didn’t have this, like, enormous lump of performance. And then nothing like some of the other people who traded who saw the crisis and traded it. You know, like I don’t think that John Paulson has necessarily covered himself in glory in the intervening years since the crisis. Right. And there’s like a risk management thing that worked well for them, but it’s what you’re saying. It’s this like you can’t just, like, swing for the fences with this government slipstream strategy. You have to kind of just chug along and zip up those basis points and just be consistent. And yeah, I think it worked really well, but it was that consistency.

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S1: So tell us a little bit about and this actually is most of the book, to be honest, is not like, you know, how how is Bill GROSS not it was more how is Bill GROSS stupid and it’s the point it’s the point at which he like he becomes the billionaire. He gets into his late, late sixties, early seventies. He’s in charge of this big organization that he has no particular desire to run. And he starts believing his own press clippings and saying and calling himself Secretariat. He’s like, I am the greatest and you guys are nothing.

S3: To be fair, I think he did believe himself the greatest pretty much throughout, to some extent, at least like he. One thing that I really kind of admire is that in the seventies and eighties, his posture was kind of similar and it was basically unearned at that time. You know, where he was like, I’m amazing at this and you’re like, What’s going on? I’m sorry. Like everyone else. It just hasn’t happened yet. But he believes in it so hard. So that’s like, you know, would that we all could have that kind of confidence. But yeah, there’s this this moment in 2011 where he makes the bad Treasury call and then, you know, again in 2013 in the taper tantrum, it just, you know, he was he kind of lost his footing and never really regained it. And at a place like PIMCO, I mean, throughout finance, of course, but also especially at a place like PIMCO, that just kind of undermines your entire credibility and like ability to, I don’t know, exist and talk to other people in that. Like if you’re in an investment committee meeting and you have bad performance, no one’s going to listen to you and they might be really mean to you. Like that’s the precedent that Bill himself had set.

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S2: I didn’t get the sense that it was his trading misstep so much that doomed him at PIMCO, but his personality and his terrible interpersonal social skills and management that ultimately doomed him, his erratic behavior, his like very much his weirdness. And I guess it’s true that he was, you know, very much full of himself and believed his press clippings, like you say. But at the same time, he comes across as a very insecure person, which drives his like his terrible management skills, which again, is what brought him down, I think, which I find just totally fascinating because the place it’s not like it was this well-managed, friendly place to begin with. Like you have that anecdote about one of the bills. There’s a lot of bills in the company.

S3: Bills and.

S2: Sales. Oh, my God.

S3: I was like trading.

S2: Card where they cut his tie because they don’t like his tie and stuff like and he everyone’s always leaving all like, twisted and like, embittered. I mean, it’s a terrible, terrible place. And even in that culture, he is too much for them. It is hard for me to like get around it. I mean, at the end of the day, it wasn’t money that like was his downfall. I mean, maybe a little, but it seemed like it was his bad personality.

S3: Yeah. Those things interact though, right? Like, if you’re a horrible asshole, but your performance is good, you’re still on top, you’re in charge. Like that’s what everyone’s going to be like. Well, I’m not going to lose anything. So I think I think you’re you’re not wrong at all. Like, I do think you’re right that it’s the the interpersonal stuff that ended up being his downfall. But I think it’s it would have been a very different it would have played out super differently if he had had performance solid that whole time. You know, and it’s funny because people are like, oh, these are only two bad years, you know, in a bajillion year career. And that’s true. But like, I don’t know, I think we can understand that, like, we’re only as good as our last story, right? It’s like a five minute memory. That’s how we interact. I think that’s like the basis for that’s like our currency among each other.

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S1: We are going to have a sleepless segment about the story behind this book, because this was a book with a long and fascinating gestation. So we’re going to talk more about the book in Sleepless. But there is no two minds this week. So let’s talk about Midtown Manhattan. Emily, what’s happening to Midtown Manhattan? Is anything happening? Is it just a ghost town still?

S2: Well, it’s a ghost town because office occupancy rates are like in the 30 percents, because people don’t want to go work in offices in midtown like a diner. The Journal had a very good piece about the fact that midtown New York City offices are pretty empty. But Manhattan real estate residential is doing gangbusters. So the question is, are people never going to go back to these offices? And if so, what is actually going to happen in midtown? Because it’s not just the offices that are affected, obviously, it’s the small businesses that surround them, that serve all the office workers who aren’t there anymore, that serve them sandwiches and coffee and chicken wings after work and all that stuff. Like what’s going to happen? And this isn’t why are we talking about New York City? Because apparently and I didn’t know this, but it’s said in the piece, Manhattan is home to nearly 11% of all the office inventory in the country, which is pretty crazy. But what’s happening in Manhattan offices is happening in big cities around the country, like even in in Texas, where you’d think no one cares about anything. And they’re all back, like coughing in each other’s faces. Offices are like 40% full. Like, people aren’t going back. So that could mean there’s like a big massive restructuring of everything about to happen. I don’t know. What do you guys think?

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S1: So my, my take on this is. This is good. And my reason for saying this is that. Midtown Office. Prices have been way too high for way too long. Like your standard midtown office, if it’s reasonably nice, can easily go for more than $100 per square foot per year, which is a crazy amount of money to spend for office space. And it prices out a massive number of companies who would quite like to be in the middle of everything. If companies find themselves able to downsize and have less space because fewer people at any given time in their offices, that opens up a bunch of space for other companies to be able to come in that maybe lower prices. And we get a much more diverse set of companies working out of those Manhattan offices. I think what we’re really doing here is we’re just waiting for the price mechanism to adjust offices, work on very, very long term leases. And so you’re going to have a bunch of empty offices for as long as those leases are in place, because the landlords have no incentive to renegotiate the leases right now. They’re just going to say, well, keep on paying me the rents that you agreed to pay back in 2018 or 2017 or when have you signed that lease? But eventually, as as those leases come up for renewal, we’re going to find a bunch of downsizing and or even before then we’re going to see, like, sublets, you know, companies just consolidating into fewer floors and saying we have some spare floors, which we are leasing, but we don’t need anymore. So we’re going to sublet them over the last to someone else. And right now, it’s bad. Right now you have low occupancy, but I think the market will slow, will solve that. And eventually you’ll have the same amount of occupancy as you had before. But just with a broader range of companies.

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S3: No more need for we work basically.

S1: Well, I mean, I.

S3: Think we still have.

S1: Still has a role to play. But yeah, I mean, it will be easier for small companies to find somewhere to lease, I think. Which is good. Right.

S2: I guess. I mean, it’s sort of interesting because they quoted Richard Florida in the piece and he said something. He compared what’s happening now with offices to kind of like what happened would happen with factories and manufacturing, you know, in like the late 20th century, which is a weird thing to say because I lived the late 20th century, but it feels super like makes it sound so long ago anyway cities adjusted to that pretty well like the the decline at at least New York City did right like Soho lofts artists that it added up but it was a big disruption and dislocation and I feel like will companies take up the office space like Felix says? Like, probably Felix is usually right about a lot of things, but. But who? Who knows? Like it could be like, I don’t know, more disruptive, more dislocating.

S1: I mean, yeah, one of one of the things that people have been talking about a lot is this idea of Midtown Manhattan in particular is way to overindexed on commercial, and it needs a better mix of residential and commercial. And they compare it to what happened in Lower Manhattan in the financial district after 911, when a huge number of office buildings were converted to residential. That, you know, would be great in principle, except for it doesn’t work. The floor plates are too big. It’s very, very hard to convert a big office building to residential or even to hotels. They’re made to be offices and they really can’t be anything else.

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S3: There was some great article I want to say in like New York Mag about in the aftermath of the financial crisis like oh 910 where they’re like, okay, how could we do this? Like you could put your shower stuff in the drawer, in your desk drawer, and just like converting a literal office into an apartment, they’re like, and then you would shower. I’m not really sure how you would reconfigure the showers, but it would have to be communal and then you could sleep in. But yeah, I mean, that gap between like everyone wants to live in New York, but no one wants to live in Midtown because Midtown is not hospitable and this is not super relevant. But I was reading about the real estate from the Gilded Age. And did you know they raised all these would be historic, gorgeous mansions for those dumb buildings that they now can’t do anything with. I’m just saying we should all be in, you know, Mr. Vanderbilt’s mahogany paneled office cutting deals instead of all living there in beautiful midtown Manhattan. But instead, we have these pencils.

S2: Yeah, that’s what you might see. I mean, there are a lot of, like, empty office downtowns like around the country, like Rust Belt cities and stuff, like they just never came back and they’re kind of ghost town. But after a while, things change. Maybe the office buildings do get razed like the beautiful old mansions and new stuff comes up, but it’ll take a really long time to shake out. Right?

S1: You know, you have to think about, say, the Jp morgan headquarters, this amazing Nathalie Du Bois skyscraper, the tallest building in the world designed by a woman, is. Now a hole in the ground. And they dismantled the entire thing. It was a perfectly serviceable headquarters just to replace it with a slightly taller headquarters in the same place.

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S3: Tragic. Completely tragic.

S1: You know, especially especially in that part of midtown midtown Manhattan, very close to Grand Central Terminal. Like there is insane demand for office space. Still, the big tower that just went up right next door to Grand Central One, Vanderbilt is completely sold out. I get nosebleed rents like super, super, well over $100 a square foot. There’s still demand for office space as ever in Manhattan, but probably globally. And the space that the most demand for is the most high end space. And what people are struggling to know what to do with is what do you do with like the better office buildings? But what you do with them is, is what the Kushners are doing with six, six, 6/5 Avenue, which is don’t renew any leases. Let it just get emptier and emptier until such a point at which you can take it down and replace it with class-A office space real estate just move incredibly slowly and we have to be okay with that.

S3: I was thinking when Emily was talking about the kind of the all the small businesses that service that are that are there, as you know, to feed the coffees and, you know, the the sandwiches and the chicken wings. You know, there was a person in the article that you cited that was talking about, oh, we opened this really swanky restaurant, and we’re not trying to aim for those people who eat chicken wings. We’re trying to be nice. We’re trying to be fancy here. And it’s like, no, I know, of course you are, because that’s what’s left. You know, like it’s this allegory for the hollowing out, you know, of of New York where the middle you know, I don’t know about y’all, but I feel like 45% know. 60% of my friends left New York. Me included, I’m friends with myself.

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S1: I’m glad you like yourself, Mary.

S3: Thank you.

S1: The one thing I’ll say about that is that is a Tishman Speyer property that is the world famous Rockefeller Center.

S3: Right. So that’s a little odd, but and it’s beautiful.

S1: It’s worth dwelling on just for a minute, because Rockefeller Center, like the financial district post-9-11, is prewar. Right? Prewar office buildings, by their nature, tend to have much smaller floor plates and lend themselves more easily to adaptive reuse of various types maybe hotels, maybe residential, maybe like swanky bars, whatever. Like Rock Center has a lot of exposures, right? Wherever you are in Rock Center, you’ll never that far from a window. And so you can do imaginative things with rock center in the way that you can with say, you know, one of the like the the News Corps headquarters on Sixth Avenue across the street. You can’t do anything with that except for just be a big, bulky office. That’s the only thing you can do with it.

S3: Yeah, I would not live in that building. I love the views.

S2: But I guess what’s interesting too, like you guys are talking about after 911, this happened after the financial crisis. This happened. It’s just a reminder that like we just went through one of those again, like one of those big disruptions where you can say after blah, blah, blah, all the offices became blah, blah, blah. Like, this is some big disruption thing and we don’t quite know how it’s going to play out, but we know something’s up, right? I mean, things are weird. 30% occupancy is is pretty weird. Maybe no one ever going back to the office every day again is like, whoa, what? Like, that’s what we were doing for a hundred years.

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S1: But one of the good things about this is, at least for me, is the. No one’s really losing money from this. They basically what you want. We’ve distributed the cost of this across hundreds and thousands of corporations who are in Manhattan and other cities, San Francisco, Dallas, wherever they are, all spending a bit too much on office space, given how many people are actually in the office. And yet, somehow they’re all making record profits. They’re all actually doing fine. If that’s the worst thing that happens is that like a bunch of companies wind up spending a bit more money on office space than they probably would want to. Given how few few people are in the office. Yeah, I’m not going to cry too much.

S3: It’s like $0.02 off of you, but it’s okay.

S2: Exactly right, I guess. Well, the shift from people, more people working from home, we’ve talked about this before. Like they’re not going to the office. Everyone’s staying in their houses. Home prices are insane right now. Going up crazy because.

S1: People need the extra space to work from home. Right? Right. Because think how many you know, what is it that you know, if you have 80 square feet or something on average in the office, you’re going to want like another. Chunk of square footage at home to make up for that.

S2: You see the census numbers. New York lost people.

S1: New York metropolitan area lost 350,000 people or something. But the New York metropolitan area is over 20 million people. So that is still less than 2%. Let’s talk about white collar crime. Mary Yadda, yadda storyteller from NPR’s amazing finance blog.

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S3: So script so I just.

S1: As because I feel like this is really a story that needs to be told. Tell us the story of Grimes.

S3: Okay. I’m going to try not to get myself in trouble here. So there used to be this blog called Hipster Runoff, and it was very important and influential. And if you go back and read it, it’s like you just I went back and read some posts when this whole thing came out a couple days ago, and it was just like getting immersed in like the post too, that like, I don’t know, it was just very intense of a, of a cultural immersion experience, but I highly recommend that. But it was basically, you know, just like blogging about the culture, right? Hipster like we all talked about whether or not someone’s a hipster at the time, I don’t know if you remember, it was very polarizing, upsetting word. And it was kind of a misogynist blog. You know, I’m shocked. You know, I know that looking back on our our past, cool things can be upsetting. And this is one of those. But there was you know, they kept posting about Grimes in unkind ways and they were like, oh, you know, scaleable. Manic pixie, dream girl, Bob. Just unkind things. That’s like not even that mean of an example. And they published these pictures that Grimes didn’t like. They were party photography, whatever pictures. And Grimes contacted a friend apparently contacted her and she said all this in a recent interview. So this is why this is coming out now. She had a big Vanity Fair cover. And in the interview she says, you know, I contacted a friend at like a video gaming company and had them just mess with the guy, like the Hipster run off guy and do like a video as a tack. And it sort of seems like what she did or had done was like actually much more severe and I want to say illegal than a Dave with tech.

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S1: But not while also saying that details attack is in itself severe and illegal.

S2: What is it? It’s just a hacking. Can we say it’s a hacking.

S3: What is that the one of denial overwhelm the server with too.

S1: Yeah, exactly. You just you basically get a million bots to all try and download bing.

S3: Bing, bing, bing.

S1: Bing, bing websites at the same time. And the website crashes and it’s.

S3: This was more than.

S1: Just attack and yeah and that’s what she says she did and that if she just did that would have been clearly illegal and criminal. And if you look into the facts of what happened, Hipster run off at exactly that time. It looks like what happened to it was worse than just a details attack.

S3: Yeah. It seems as though there was like interference with the archive and the site ended up just stopping. That was the end of Hipster run off, which yeah. And it was this like big influential website at the time. So, you know, everyone was like, Oh, what happened to Hipster up? It was like a thing. And then just now we’ve heard that and there was like maybe some low grade blackmail in there where she was like, Take the story down. And if you don’t take it down, the Russia and none of this, you know, this is all kind of coming out now in little bits and pieces. But it sounds like she was telling this like she’s like, yeah, I got cancelled before cancelling was a thing, you know, before our woke era and the way she’s characterizing it, it sounds like this like funny, cute manic pixie thing that she did. And it’s like, babe, those are crimes I think get it.

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S2: Crimes from Grimes for the old the old listening. Can we say clearly that Grimes is a.

S3: Musician.

S2: Or a musician who is artists who I only know because she went out.

S3: With actress.

S2: Elon Musk.

S1: She she’s the mother of two of Elon Musk’s children. She is now dating Chelsea manning, apparently, which is which is a whole thing.

S2: Very different from Elon.

S1: Did they talk about computer hacking in bed at night? Probably.

S3: Probably, definitely.

S1: Yeah, definitely.

S3: A lot of overlapping in that way.

S1: So the reason we’re talking about this honestly is because a lot of the time when we talk about white collar crime on this show, what we are talking about is financial stuff. We’re talking about insider trading or financial fraud or that kind of stuff. And we don’t often talk about other kinds of like nonviolent white collar crime, like hacking an opponent’s website or email. One thing that this reminded me of was another person who decided that it was a good idea to suddenly get like really honest about past criminal behavior, which is this guy, James Altucher, who was later famous for being like a Bitcoin shill, you know, was earlier famous for having a confessional blog. And one of the things he did on his confessional blog was commit to a bunch of crimes that he had committed about hacking into his competitor’s emails and like screwing up their business that way. Equally criminal. And yet there seems to be this thing on the Internet that you can just say, Oh, yeah, I did, I did crimes. It’s fine by.

S3: Law. And then, you.

S1: Know, now in this era where we had a president of the United States who happily came out and just admitted to committing crimes on a regular basis, and everyone’s like, wait, you just said that, you know, in an interview with Lester Holt and now now, you know, are we going to prosecute you? And the answer is, no, we’re not. You know, Alvin Bragg, the Manhattan prosecutor, has now made this decision basically to not prosecute the crimes of Donald Trump. The people in charge of the investigation have resigned, saying like he committed crimes and you shouldn’t be able to get away with that. But it does seem that for nearly all of these crimes, even if you are very open about the fact that you committed the crimes, if you are someone like Donald Trump or James Altucher or Grimes, you can just come out and say, Oh yeah, I did crimes and no one is going to prosecute you. And there was never any accountability for this.

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S3: Yeah, it’s confusing. So I guess the lesson is if you if you just confess in a funny, cute way. That’s like it’s the opposite, you know? Everyone’s like, Oh, don’t comment, you know? Miranda Rights. No, the galaxy brain answer is to just blog it. And it doesn’t it doesn’t.

S1: Work for, like, violent crime, right? You can’t say, huh? Yeah. That was this one time where I stabbed a guy.

S3: You know.

S1: You will get arrested.

S2: It doesn’t work for poor people.

S3: Right? I think it might be a classic case of how.

S2: It works for famous people. It works for wealthy people, and it always has. White collar crime is like people are empathetic to your wife, to the white collar crime, typically, unless it goes just really haywire like Madoff or something, and then other rich people lose money, a lot of them. Then there’s accountability. But like there’s a lot of empathy around white collar crime. Like if no one gets hurt in a way that there’s not, that because there’s kinds of there’s crime that poor people do that really doesn’t hurt anyone that people get incensed about. Like people are freaking out right now because of shoplifting or something. And like, there’s all this hysteria, like New York is like the seventies now because people are doing crime and stuff like that. There’s a lot of like nonviolent poor people crime that people freak out about, but they never freak out about, like, right? Yeah. Jumping turnstiles, stuff like that.

S3: There’s so much citizen, I don’t know, like cop cosplay where like, you don’t need to police this. You can you can stand down.

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S1: Let’s have a numbers round. I feel like it’s time to I. Yeah. I can’t remember the last time I went first on the numbers round, so I’m going to go first. This time I’m going to do a number which I stole from Emily, because then we have this awesome newsletter called Axios Markets. And so I’m going to be like, Let’s do the number that I learned from Emily, although I did a little bit more homework anyway, the number is $1.87 million.

S2: I don’t know what that is.

S1: And I don’t know what that is. $1.87 million is the amount of money that Scarlett Johannson got for selling her 53rd Street apartment in New York.

S3: Which midtown’s back baby, which.

S1: She which she bought in 2008, 14 years ago for Mary. Have a guess how much she bought it for Midtown 2008.

S3: What month? In 2008? You know.

S1: I don’t know.

S2: That is the question we had.

S3: We noticed that the global economy was melting down yet or not. I don’t know, 600.

S1: She bought it in 2008 for 2.1 million.

S3: Girl what’s a house garden in early 2008?

S1: Okay, but wait, let me but Scarlett Johansson is this is not the first time she has done this. She’s Tribeca. She bought a Tribeca duplex for 1.95 million in 2006 and sold it two years later for 1.89 million, which was a loss. And Max Abelson, our friend, wrote that when he was at The Observer and he said that is basically unheard of in the period when basically everything trebled in price. You managed to lose money on her.

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S3: Tribeca So she she buying.

S1: But wait, this is my favorite one.

S2: Chapter.

S1: Of Hollywood. She bought this she bought this villa in the Hollywood Hills for $7 million in 2007.

S3: Oh, I’m nervous.

S1: And sold it in 2010 for 4000007 million to 4 million.

S2: In three years. Wait, what is going on with this is I must.

S3: Be attack the taxability. Yes, it’s got to be the 1031. Somehow I don’t understand it. This is like call me. Yeah.

S1: She’s like, right. You need a deep.

S2: Dive in.

S1: Losses against, like, filming comments, all the texts, all the text. Look, I just.

S2: You know, I wish that I had really gone deeper one level. I should have done a whole item on this. I just.

S1: You can still do it. You can still do it. You can steal this for for next week’s Axios markets and do a deep dive. You can have an entire newsletter devoted to how has Scarlett Johansson managed to do so many bad real estate?

S3: I mean three is a trend. Yeah like all you can’t throw a dart and you make I’m very confused and so are you.

S2: Say also why was she why is she buy an apartment on Sutton Place. I feel like that’s for really like old ladies like I don’t like that she.

S1: Yeah I mean the only people who buy in certain places like UN diplomats and Tina Brown.

S2: Just. Wow. But who can beat that going first? I don’t know, Mary. Maybe. Pass it on.

S1: All right, Mary, I think.

S3: 1% does fun.

S2: But it’s also a real estate number. It’s $535,000. The median home price in Boise, Idaho. Wow. While considered.

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S3: Bringing it back.

S2: The least affordable city in the country to live right now. If you look at the census map that they just released with the report about where people moved in the pandemic or whatever. Idaho is the greenest place, the greenest state on the map, it seems like.

S1: And we’re not talking about the color of the grass. We’re talking about the true uplift.

S3: Big Brown, actually. Yeah.

S2: Yeah. Like they use Green to connote positive movement into the state. And Idaho is super crazy green and no one can apparently afford to live there. Who’s been living there? Because all these new, you know, obnoxious, probably no offense to anyone who lives in Idaho, don’t email me.

S1: Is Boise a hipster town now full of like I think refugees subway tile.

S3: I, I truly.

S2: I really wish I was like a national reporter at some other publication where they would like, send me some national publication has to send a reporter.

S1: I should send you to Idaho. She will send you to Idaho if you ask her nicely.

S2: I will do that. But also, Mary should go for do a Planet Money Idaho app because I think it’s quite a scene there.

S1: But I have to say, we did get a bunch of emails from listeners when we talked last week about where is the best place in America to live if you want to avoid future climate change. And a bunch of people said like Chicago and the northern bit of the.

S2: Country.

S1: Between the coasts, but Idaho, I think I think Boise is if you want to protect yourself from the ravages of future climate change, Boise is not a bad place to go.

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S2: Yeah, that’s true. Well, I mean, a lot of people are going there, so you might have Felix just sent more people there driving up home prices even more so.

S3: Way to go.

S1: Sorry. Clearly in Boise out there.

S3: Well, you know, we.

S2: Have to send Scarjo there. We know she’ll help how that will go her that average.

S1: Exactly.

S3: She’s such a force. Okay friends, my number is 0.2 percentage point. And that is the gap between the two year yield and the ten year yield.

S1: Inverted yield curve. Wait, wait, which one? Which one is is it inverted? Is it positive or negative?

S3: It’s just a little it’s just like a little flirting with inverted. It’s like, not sure. It’s like, I don’t know.

S1: 2/10 of inverted. So Mary, in your perfect Planet Money, excellent explanatory voice, can you tell us what is an inverted yield curve?

S3: So in normal times, short dated bonds and notes are supposed to be are supposed to yield less than long dated because the more time you have in something, the more risk there is that things could go wrong. But an inverted yield curve in the Treasury market is when that’s upside down. And basically you’re saying, I don’t know what you know, I think that there’s more near-term volatility, there’s more risk that things are going to be that yields are going to be higher tomorrow in two years than there is in ten years. And this usually, very often presages a recession. This is one of the great notorious indicators of a recession. And there’s a lot of question about, you know, correlation causation, yadda, yadda. I like to what extent is this reliable? It signals, you know, the the yield curve inverted in 2019 and certainly was not saying, oh, my gosh, there’s going to be a pandemic that catalyzes an enormous recession. So you have to detangle some of the noise there. But it is nonetheless one of the most reliable indicators and it definitely says things are weird. So which we know to some extent.

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S1: Right.

S3: Now. I know it’s not that I.

S1: Think we needed the yield curve to tell us that.

S3: You’re welcome that. But the bond market is saying loud and clear, my friends.

S1: Mary Childs, thank you so much for coming on this show. We love you so much on this show. And I’m sure you’re just an amazing, wonderful person.

S3: Oh, thank you. It’s literally honor to be here. I was trying really hard not to fangirl. Did I? Did I achieve it?

S2: We welcome it. Yeah.

S1: We want all the family.

S3: Okay. I love my fangirl movies. I’m freaking out to be here.

S1: Come back. Come back anytime. And yeah, we will. We’ll be back on Tuesday with Slate Money going to the movies. At some point we are going to be having Cardiff Garcia talking about victimless white collar crime and office space. So that’s going to be a.

S3: Fun one to talk about basis points and a steady strategy. You know what I mean?

S1: Exactly. That’s the Superman three scheme for stealing pennies from everyone is a classic basis point. Bill GROSS.

S3: Classic. Classic The Vagina. Yeah, yeah.

S1: Listen to the podcast and yeah, send us an email. Sweet money, it’s late. Don’t come and buy the bond. King Which is for sale at your local independent bookstore right now. Okay. Let’s do a sleepless segment about this book. Mary, how many times did you write this book?

S3: How many times? So formal drafts, I think, at least for the first two were humiliatingly bad. I am so glad neither of you read them because they were like. I mean, I turned them in thinking they were drafts, but they were piles of words. They were not sentences even like it was. Oh, I, I got really. You like part of my problem as a journalist is this is like a good thing to but it’s really annoying is that I have to comprehensively understand something before I can say something about it. So I like had to go deep on the history of pensions in America to understand the justification for PIMCO existing. And that took me to Thomas Paine and like the Civil War, you know, because that’s when I don’t I don’t know. So I can’t recommend that process for book writing. I think that was actually not that helpful for constructing the knowledge base for my book, but I did it and now I understand it a little. And then the later drafts are much better.

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S1: Was it always a Bill GROSS book?

S3: Good question. I don’t actually think of it that much as a bill gross book. I know it’s called the Bond King, but, you know, I’ve always to me, it’s always been a history of the bond market and like like an understanding, like, look, a yarn in an adventure in the bond market with Bill GROSS and PIMCO as the vehicle. Right. Which makes sense because they’re, you know, the bond people, they’re kind of the epicenter of this market, at least in my view. And and this kind of goes to my overarching theory that the bond market is less popular than it should be less appreciated.

S2: Because it.

S1: Will get no argument from me on that.

S3: Front. Thank you. Yeah, I’m in a safe, safe space for that. Yeah.

S2: Thank you. Buying debt like that? Never. When you hear those words. When I hear those words, I’m like, well, forget it. Let’s just talk about socks. But what’s great about your book is, is like about people, you know, you made it about people in the end. Was that not in the first three versions?

S3: I Emily, I can’t tell you what’s in the first three versions. They were it was just like I don’t even know what I was doing. I was just typing. The third version was based was substantially this and I had a lot of editing help. So it’s not my own genius that made it not terrible any longer.

S2: Now can you talk about throughout the book there are these amazing footnotes where it’s like Mohamed El-Erian says, this never happened or.

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S1: Oh, my God, like all about my Dr. Al-Arian.

S3: Yeah.

S1: Mohammed hacked the book and managed to get, like, a pre-publication copy of the book.

S3: Yeah, evidently he obtained a copy of the manuscript. Yes. I don’t know.

S1: Is like and because. Because he got paid how much when he was at PIMCO.

S3: Oh, many zeros. Yeah. 230 million in one year.

S1: In one year.

S3: Yeah.

S1: Like 230 million is not his earnings like lifetime earnings at PIMCO. That was just how much he paid himself in one year with that kind.

S3: Of publicly that he’s not a billionaire, which I’m like mathematically what have you. Are you Scarlett Johansson really messed that up. You okay?

S1: But the. But yeah, this reminds me, like since we’re talking about movies like it reminds me of like in The Devil Wears Prada. As you say, I have so much power, I can just get a pre-publication copy of Harry Potter.

S2: Like, yeah.

S1: Muhammad has so much money, he can get a pre-publication copy of the Bond King even though he refused to talk to you and then communicates through his presumably extremely expensive lawyer writing long letters, saying like, this is wrong and I want like, did that letter just sort of come out of the blue?

S3: Yes. So, you know, I finished the fact checking. I finished the you know, I hired fact checkers. You know, we did the legal edit as every book is reviewed, you know, in publishing. And I was like, I’m done finally. Wow, this thing is this massive project of so many years as finally. Oh, no. So I got this email from a representative of Mohamed El-Erian saying that they would like to talk. And yeah, it came out this is December 20, 21. And, you know, I’m like the book is typeset at this point. Book deadlines are not the same as like wirehouse publishing. You know, I’m not like, hi, I’m calling you with 2 hours to publication. I’m calling you for the fact check and whatever with months and months and months to publication, because the book is, you know, being literally physically printed, I can’t change it. Thankfully, Macmillan was extremely, extremely nice about it. And, you know, let us make changes like this and typeset the book and re typeset it. And of course I was like so happy to have Mohamed El-Erian viewpoint in there. Like this had had pained me over the many years that I didn’t have his perspective because he’s so central to the narrative. But, you know, I’d worked so hard to kind of synthetically replicate it. But yeah, he had notes, so it was great. I got to incorporate those notes. It was incredibly stressful because, you know, it was about to come out. We had to delay the publication of the book.

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S1: But yeah, as a tactic, does it make any sense to you? Do you see any advantage for Mohammed to not talk to you and then send you notes at the very last minute via his lawyer versus just talking to you?

S3: Oh, I honestly think just talking to me is better. Like.

S1: Is it like in your in his mind, why do you think he didn’t?

S3: I think a lot of people behaved in a somewhat similar I mean, not to this extent. And certainly they were to central no one. No one. But Bill and Mohammed are central to the narrative of this book. But a lot of people didn’t want to give me new stuff, you know, and didn’t want to provide me with material that I didn’t otherwise get. Which is funny, because then they call me. They’re like, How did you not get the story? And I’m like, Babe, you got to tell me the stories that you think I need to know. Like, that’s how this works. But, but a lot of them, I think, were, you know, a bajillion things happened. And they were very nervous about all of those things getting to me. And so they didn’t want to provide me with material that I you know, if I got it, fine, they would comment but or fact check or whatever. But if I never found the thing, I think it was in their interest to not hand me the thing.

S2: I have a question in the book you describe early on when you were back at bloomberg beat reporter trying to get an interview with bill gross and you have like these brownies and you show.

S3: Up oh god at.

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S2: His house with the brownies and the.

S3: At his gated community front door.

S2: Yeah. You can’t bring strange lady brownies.

S3: Stranger. Yeah.

S2: How did you go from that to this book? Like, how did you source him ultimately? How did that happen?

S3: Well, a number of ways. I mean, I talked to Bill while I was at Bloomberg and reporting on this. Right. There are plenty of public interviews that I can point to for that where he’s actually, as you may know, he loves the press and he’s very media genic and he’s actually a great interview. He’s very candid, he’s reflective, he’s funny, all of these things. So I also had arrived in the aftermath, right? Like the Journal article came out in February 2014, and I started covering PIMCO in April 2014. And so to some extent, the battle lines were already drawn where, you know, and you can see Bill running through this in his head in the book at one moment where he’s like, Who should I call? You know, Muhammad’s getting the upper hand in the public narrative. Who should I call?

S1: And he winds up pulling Jenna blonde, which is awesome. Like the one time that Reuters really made it into the narrative.

S3: Yeah, that story was in and just. Yeah, Jen got the call and dutifully, you know, wrote a story of what Bill said. And it was a very mindblowing story. Yeah. So I think like he, you know, he’s reflective and to some extent, like I had covered credit markets for a long time by that point. So I like understood what he was saying and not that other people don’t. But I think it’s fun if you can kind of like if you can really get into the details and be like, Oh, that strangle was rad. You really nailed the, you know, the spread like that. That goes a long way if you’re like, if you already know what a strangle is. And so to some extent it was like being fluent and you can skip the kind of introductory like what even are we talking about stuff and get more into it. So, so there might be like a mileage point there as well. Yeah. I don’t know. I think it was also that like. I wanted to understand and again, not that other journalists didn’t, but it’s there’s a there’s a different like I was like, really? Like, my job was to get the story. And so I was much more in a position to just sit there and listen for as long as it took, you know? And if he wasn’t ready to talk, he wasn’t ready to dog. You weren’t ready to talk. And then, you know, I was there when he was ready.

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S2: Very good. Good job.

S3: Thanks. That’s why this took so long. Now that. Really.

S1: So, yeah. Now someone. Someone is going to have to write the Muhammad book at some point, but I’m assuming it’s.

S3: Not someone told me. Well, no, it’s not me. Someone told me he’s writing his own, which I have not confirmed that. But wouldn’t that be nice? Then we would have like Bill’s own memoir, my book. Mohammed’s book. Like, where’s Dan Iverson’s book? You know, why not?

S1: Probably the single most embarrassing.

S3: Exciting. What is this going to be?

S1: A journalistic fuckup? Maybe. Maybe. Definitely. Top five most embarrassing journalistic fuck ups I ever did was when I was at Euromoney very early in my career, and I quoted Mohammed quite prominently in a story about emerging market that misspelled him. Oh.

S3: People do this all the time. It drives me batty.

S1: And I was. And that was the point at which I like. I have never misspelled anyone from that moment forth, basically because it was so seared into my mind. I gave him two M’s in the middle of his name instead of just one. And then, like, it didn’t occur to me that there were different ways of spelling as I know.

S3: That like I don’t know, that really like tweaks me now. Like my, my transcription software was very creative with spelling his name and I was like, you did not just do it like it like really got stuck in my craw or I was like, That is not how you spell it. Okay. To my robot transcription software.

S1: Thank you, Mary.

S3: Thank you. This was such a treat.