Stories from the thick of the financial crisis aren't a rare commodity. Everyone who was anyone in 2008 – and many who were not – have had their tales told and retold, packaged and repackaged, to the point where you can sell just about anything to anyone.
Still, some anecdotes from the most over-analyzed period in recent economic history remain underreported. Enter would-be bond king and would-be national savior Bill Gross.
In a recent iteration of Institutional Investor's periodic “War Stories Over Board Games” – in which aging financiers play blackjack or backgammon or whatever while lazily glorifying their careers – the former Pimco chief recalled how he, alongside Warren Buffett, came within inches of personally saving the financial system back in 2008. That is, before Hank Paulson and Neel Kashkari bumbled in and screwed everything up. Here is that story:
“On the day that Congress was voting close to a trillion dollars to salvage the system, Henry Paulson and Neel Kashkari, who was his right hand man, were trying to decide how to salvage the banks. Warren Buffett called me up – and we’d become friends over the years – he called me up and said, ‘Bill, I have a plan. I want to raise several hundred billion dollars of equity capital. I think the government will throw in a trillion dollars worth of loans. I want to buy subprime mortgages from the banks in order to save the country.’”
Here the interviewer, Julie Segal, interjects. “He said, save the country?”
Gross continues without acknowledging the question. “He said, ‘Will you be the person or firm that buys the bonds?’ I said ‘Done deal.’ But overnight Kashkari and Paulson decided instead of buying the mortgages to inject close to $800 billion into the system via equity – preferred – and that’s the way it went. But Pimco and yours truly was on the verge of saving the country thanks to Warren Buffett.”
Segal: “And you said, ‘Yes, right away’?”
Gross: “Right away!”
The structure Gross describes was proposed by Buffett in a letter to Hank Paulson in October, 2008. He called it the Public-Private Partnership Fund. It would be capitalized with $50 billion in equity and bonds – including $500 million from Berkshire Hathaway – and managed by Pimco.
“Exploring the merits of this plan, I have talked with Bill Gross and Mohamed El-Erian of PIMCO, and they have told me they would manage this operation on a pro-bono basis,” Buffett wrote. He also mentioned speaking with Lloyd Blankfein about underwriting the deal.
But alas, Paulson went with his own TARP structure, and the Gross/Buffett supergroup never got off the ground. For Gross, however, it's probably for the best that the effort fell through – he might have developed a big head over the whole affair.
How Bill Gross And Warren Buffett (Almost) Saved America [Institutional Investor]