The Bond King: How One Man Made a Market, Built an Empire, and Lost it All by Mary Childs

1

The Housing Project

August 2005. Dan Ivascyn climbed into the passenger seat of his mortgage
broker’s car and buckled his seat belt. It was early on a perfectly pleasant
August day, which he would get to spend riding around with this stranger.
They pulled away from the Countrywide office—one of four new branches
in the Boston area—and set off to explore a suburb, driving past cranes and
bulldozers and Tyvek-wrapped house skeletons, signs that said IF YOU LIVED
HERE, YOU’D BE HOME NOW.
They’d already talked about the state of the market a bit. It wasn’t news
to Ivascyn that things were frothy. It was slowing slightly, but that was
normal for this time of year, with kids going back to school and the weather
deteriorating.
The broker had a couple different neighborhoods he wanted to show
that he thought would be interesting to Ivascyn. This development, he said
as they approached, we’ve done a lot of interest-only loans here. This next
one is mostly adjustable-rate. If we turn here, down the road a ways, that’s
where we’re doing a lot more “affordability” products. As they drove
further out into the suburbs, they clocked the rising prices: The Worcester
market only rallies when people are priced out of Boston.
Ivascyn, an analyst on the desk that bought and sold mortgages and
products tied to them, was friendly, personable, good at putting people at
ease. But this wasn’t really a charm offensive. He listened patiently as the
broker chattered, dutifully taking notes.
He wasn’t mad that he had to do this. He could see the marketing
benefit. It was a story they could tell clients: Pimco didn’t just trust the data,
they actually went out and checked.
And anyway Gross had insisted: “We needed to get a feel for the rest of
the country,” he’d said. Some economists had begun to warn about a
housing bubble, but the sound of money has a way of drowning out other
noise. The price-appreciation party had raged on, even as Federal Reserve
chair Alan Greenspan cited “a little froth” in the market. Pimco analysts
thought they knew how out of hand things were getting, based on their
customary intensive research and the black-and-amber figures on their
twenty-thousand-dollar-a-year Bloomberg Terminals. But Gross wanted
“real” data, information beyond what his mortgage traders had already
begun to conclude. And Ivascyn was in no position to say no.
Gross, Pimco’s mercurial front man and leader, cofounded the company
in 1971 with two others. They’d taken a sleepy backwater unit of a life
insurance company and turned it into the largest bond manager in the world.
Now the lanky, mustachioed, and deceptively frail-seeming chief
investment officer was the only one still charging ahead unabated. In 2002,
Fortune magazine called Gross “the Bond King,” and it had stuck.
Pimco had forty credit analysts covering companies like IBM and
General Motors, so why not, Gross reasoned, send ten of those out into the
world? “Instead of sending them to Armonk to interview the treasurer of
IBM, let’s send them to places like Detroit, Miami, or Vegas.”
The brilliant idea had come to Gross in the middle of the trading day,
while he was at yoga, his long string bean body upside down in the
Feathered Peacock pose. Aha! The analysts would go out and pretend to be
prospective homebuyers—they’d ride around with Realtors and get the real
information about what was going on in the market.
So, now, one of Ivascyn’s colleagues was in Detroit, one in Miami, one
in Vegas. Ivascyn’s boss, Scott Simon, the head of the mortgage group, was
in Dallas because he liked barbeque. No one was going to buy a house. Or
even pretend to. Simon and the rest of the team had objected immediately to
the fake-homebuying idea. It made no sense. It just wasn’t necessary.
So instead they called their contacts at various mortgage lenders—from
whom Pimco bought millions and millions and millions of dollars of
mortgages—and asked to be set up with local Realtors and branch officers

The Bond King: How One Man Made a Market, Built an Empire, and Lost it All by Mary Childs