Life after Pimco: Mohamed El-Erian on economics, politics and his hope for a 'Sputnik moment'
Meet Mohamed El-Erian
On Tuesday, El-Erian will make a rare appearance at an Orange County public event to discuss "The Economics of Inequality."
Billed as "a conversation about wealth, income and opportunity," the event will also feature Sallie Krawchek, a prominent former financier who heads Ellevate Network, a group promoting economic opportunity for women.
Time: 7 p.m.
Place: Soka University Performing Arts Center, 100 University Drive, Aliso Viejo.
Tickets: $10 (no one will be turned away for lack of funds)
Over a year has passed since Mohamed El-Erian abruptly quit the helm of Pacific Investment Management Co., the $1.7 trillion global financial powerhouse based in Newport Beach.
He has left behind the ugly headlines baring his conflict with Pimco’s so-called “Bond King,” Bill Gross. He has left behind the stress of watching clients, in search of higher returns, pull tens of billions of dollars out of the firm.
And he has left behind the outsized pay packages that came with the post of chief executive and co-chief investment officer: his 2013 bonus was $230 million, according to a Bloomberg report.
So, how’s El-Erian doing?
“My life has been incredibly fulfilling,” he said in an interview last week.
The 56-year-old economist still rises at 3:30 a.m., as he once did when he commuted from his Laguna Beach home to Pimco’s trading floor. But now he spends the pre-dawn hours writing a book (working title: “The Only Game in Town: The Rise and Possible Fall of Modern Central Banking and What it Means For You”) and penning columns for Bloomberg and the Financial Times.
Then he makes breakfast for his 11-year-old daughter before driving her to school.
Even before the Pimco blow-up, El-Erian had been thinking about his lack of work-life balance. Several months before he resigned, his daughter had handed him a list of events he had missed. Her first day at school. Her first soccer match of the season. A parent-teacher meeting. A Halloween parade.
Now, he says, he gets to pick her up from school and accompany her to after-school activities.
El-Erian spends about half his time as “Chief Economic Adviser” to Pimco’s parent company, Allianz SE, the Munich-based financial services firm, which provides him offices on the ground floor of a Newport Beach office tower.
A PhD in economics who was a fixture on financial television programs over the years, he says he has turned down government job offers and directorships at Fortune 500 companies. Instead, he chairs President Obama’s Global Development Council, and serves on a slew of non-profit boards.
“I am privileged to decide what I really want to do,” he says. “What I really want to do is be exposed to various ideas. Nothing incentivizes you more than when you have to write.”
El-Erian’s central bank book won’t be his first. His 2008 volume “When Markets Collide” was a business best-seller.
And if his life today sounds a bit tranquil, it nonetheless harkens back to an early ambition: a career in academia. He abandoned that path at 23, when his father, an Egyptian diplomat, died, leaving him to help support his mother and sister. So he took a better-paying job at the International Monetary Fund.
Did his eventual path to the top of Pimco have nothing to do with the allure of power and money?
El-Erian acknowledges that “the world of finance I’m interested in does pay off,” but he prefers to talk about the intellectual challenge: “I loved working at Pimco. You are surrounded by the smartest people in the business.”
He won’t discuss the circumstances of his departure – and reportedly signed a non-disclosure agreement. But he recalls with fondness Pimco’s “incredible environment – an environment of discussions. Of a clear mission to deliver the best you can to the client. A long term orientation – an investing orientation, as opposed to a trading orientation.”
El-Erian’s only business venture these days is an investment of several million dollars in a Costa Mesa startup, Payoff Inc., which helps overextended families refinance credit card debt at reduced rates. He joined Payoff’s board after meeting the founder, Scott Saunders, who had a child in his daughter’s drama class.
“It’s an incredibly talented bunch of people with a ton of experience and commitment,” El-Erian said. “I was captivated by their mission."
In a wide-ranging interview, El-Erian discussed topics ranging from the global economy to the rise of inequality in the United States, his personal financial portfolio and his love of Twitter.
Here are excerpts:
Q. You are speaking Tuesday at an event focusing on economic inequality. Why?
A. Income inequality has risen so much that consumption as a whole is undermined. That’s because rich people have a much lower propensity to consume than poor people. But it is the rich people that have captured all the income growth for the last seven years.
A little bit of inequality is good for the system because it creates incentives. A lot of inequality actually creates negative economic effects. It has become an inequality of opportunity.
Q. What should be done?
A. The government should be using fiscal policy – taxing the rich more and supporting the sectors that are critical to equality of opportunity: like education and health.
Q. What sort of taxes on the rich?
A. I would remove loopholes that are being taken advantage of by the rich. I would tax private equity [more]. The inheritance tax should be higher.
Q. Would you raise income taxes?
A. There is this view that if you take the top marginal tax rate up two percentage points, you’ll somehow completely alter the work incentives. I don’t believe that.
Q. Capital gains were taxed at 39.9 percent in the late 1970s. Now the rate is at 15 percent. Would you change that?
A. I wouldn’t start from the presumption that you can’t touch these rates. I would start from the presumption that we need to invest in the future of our youth.
Q. How do you convince wealthy libertarians to pay more taxes?
A. There comes a stage when those who benefit from inequality realize that they better do something about it. You cannot be a good house in a challenged neighborhood.
Q. Is executive pay too high?
A. I am all for shareholders being a lot more interested in how profits and revenues are allocated. …We live in a world of “winner-take-all.” Some of it is good. You want the Steve Jobses of this world to be rewarded. But “winner-take-all” is much higher than in the past. This is where the taxation system can help enormously.
Q. According to Bloomberg, Pimco had a 2013 bonus pool for its 60 managing directors of almost $1.5 billion. Does that make sense?
A. I’m not going to talk about that.
Q. Why write a book on central banks?
A. This is a historic period in which central banks are the only game in town when it comes to policy. But central banks do not have the tools to deliver what the global economy needs. We need more potent reinvigorated growth models.
The West fell in love with the wrong growth models 10 years ago. It fell in love with finance as an enabler of prosperity. The whole society fell in love with leverage and credit as a way of prospering. We were entitled to accumulate debt! People bought homes they could not afford. Governments borrowed money that they could not pay back.
Regulators believed that finance was so sophisticated that you could lessen regulations on it. This romance with the wrong growth model fell apart in 2007 and 2008.
Q. Now what?
A. We are struggling to find a new growth model because the political system hasn’t stepped up to its responsibilities. Obvious things like investing in infrastructure at extremely low interest rates are not being done. The reform of corporate taxation. The reform of labor markets – retraining workers, developing apprenticeships through public-private partnerships.
Either governments and politicians and companies will step up to their economic governance responsibilities and we will turn to something sustainable or, if we don’t, then you will have low growth and financial instability.
Q. How would you fix this?
A. We need a Sputnik moment. Like when we woke up to a satellite being launched successfully [by the Soviet Union in 1957] and our country came behind a vision and there was a unity of purpose. What we desperately need is an economic Sputnik.
Q. How would this Sputnik moment happen?
A. From our politicians realizing that we are wasting the potential of the youth. I am a believer that politicians end up in the right place after taking a few detours. California is a perfect example. Five years ago people felt that the state’s economic future had been permanently impaired. It turned out not to be hopeless. Sacramento implemented reforms.
Q. You’ve written positively about President Obama. Are you an admirer?
A. Yes. His views are well grounded in analysis. He incorporates data. Starting with the jobs speech he gave a few years ago, he has given a clear vision on the economy.
Q. You’ve also said his economic proposals have no chance of being approved.
A. Congress has become obsessed with three words: won’t, can’t, shouldn’t. We have a do-nothing Congress.
Q. If that’s true, as a wealthy man, why don’t you support candidates who believe what you do?
A. I have problems with the role of money in our politics. ... It is not clear to me that money given to politicians brings about the Sputnik moment. I would rather give money to the O.C. food bank.”
Q. Where is your money? Stocks? Treasuries? Bonds?
A. It is mostly concentrated in cash. That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.
Q. So we’re nearing a bubble?
A. Go back to central banks. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something. So they artificially lift asset prices by maintaining zero interest rates and by using their balance sheet to buy assets.
Why? Because they hope that they will trigger what’s called the wealth effect. That you will open your 401k, see it has gone up in price, and you’ll spend. And that companies will see their shares are going up and they will be more willing to invest. But there is a massive gap right now between asset prices and fundamentals.
Q. What do you think of moves by European countries to require that companies include a certain number of women on their boards?
A. Cognitive diversity is critical for the success of any firm. You don’t get there without gender diversity, cultural diversity, and diversity of background. But quotas are tricky. Sometimes the people who oppose quotas most are those who are supposed to be served by them. You risk diminishing their achievements.
Q. You tweet on everything from #Abenomics to #Yellen and you have 60,600 followers.
A. I came to Twitter reluctantly. Now I am hooked! It is a wonderful way to keep up.
Contact the writer: mroosevelt@ocregister.com; Twitter @MargotRoosevelt
He has left behind the ugly headlines baring his conflict with Pimco’s so-called “Bond King,” Bill Gross. He has left behind the stress of watching clients, in search of higher returns, pull tens of billions of dollars out of the firm.
And he has left behind the outsized pay packages that came with the post of chief executive and co-chief investment officer: his 2013 bonus was $230 million, according to a Bloomberg report.
So, how’s El-Erian doing?
“My life has been incredibly fulfilling,” he said in an interview last week.
The 56-year-old economist still rises at 3:30 a.m., as he once did when he commuted from his Laguna Beach home to Pimco’s trading floor. But now he spends the pre-dawn hours writing a book (working title: “The Only Game in Town: The Rise and Possible Fall of Modern Central Banking and What it Means For You”) and penning columns for Bloomberg and the Financial Times.
Then he makes breakfast for his 11-year-old daughter before driving her to school.
Even before the Pimco blow-up, El-Erian had been thinking about his lack of work-life balance. Several months before he resigned, his daughter had handed him a list of events he had missed. Her first day at school. Her first soccer match of the season. A parent-teacher meeting. A Halloween parade.
Now, he says, he gets to pick her up from school and accompany her to after-school activities.
El-Erian spends about half his time as “Chief Economic Adviser” to Pimco’s parent company, Allianz SE, the Munich-based financial services firm, which provides him offices on the ground floor of a Newport Beach office tower.
A PhD in economics who was a fixture on financial television programs over the years, he says he has turned down government job offers and directorships at Fortune 500 companies. Instead, he chairs President Obama’s Global Development Council, and serves on a slew of non-profit boards.
“I am privileged to decide what I really want to do,” he says. “What I really want to do is be exposed to various ideas. Nothing incentivizes you more than when you have to write.”
El-Erian’s central bank book won’t be his first. His 2008 volume “When Markets Collide” was a business best-seller.
And if his life today sounds a bit tranquil, it nonetheless harkens back to an early ambition: a career in academia. He abandoned that path at 23, when his father, an Egyptian diplomat, died, leaving him to help support his mother and sister. So he took a better-paying job at the International Monetary Fund.
Did his eventual path to the top of Pimco have nothing to do with the allure of power and money?
El-Erian acknowledges that “the world of finance I’m interested in does pay off,” but he prefers to talk about the intellectual challenge: “I loved working at Pimco. You are surrounded by the smartest people in the business.”
He won’t discuss the circumstances of his departure – and reportedly signed a non-disclosure agreement. But he recalls with fondness Pimco’s “incredible environment – an environment of discussions. Of a clear mission to deliver the best you can to the client. A long term orientation – an investing orientation, as opposed to a trading orientation.”
El-Erian’s only business venture these days is an investment of several million dollars in a Costa Mesa startup, Payoff Inc., which helps overextended families refinance credit card debt at reduced rates. He joined Payoff’s board after meeting the founder, Scott Saunders, who had a child in his daughter’s drama class.
“It’s an incredibly talented bunch of people with a ton of experience and commitment,” El-Erian said. “I was captivated by their mission."
In a wide-ranging interview, El-Erian discussed topics ranging from the global economy to the rise of inequality in the United States, his personal financial portfolio and his love of Twitter.
Here are excerpts:
Q. You are speaking Tuesday at an event focusing on economic inequality. Why?
A. Income inequality has risen so much that consumption as a whole is undermined. That’s because rich people have a much lower propensity to consume than poor people. But it is the rich people that have captured all the income growth for the last seven years.
A little bit of inequality is good for the system because it creates incentives. A lot of inequality actually creates negative economic effects. It has become an inequality of opportunity.
Q. What should be done?
A. The government should be using fiscal policy – taxing the rich more and supporting the sectors that are critical to equality of opportunity: like education and health.
Q. What sort of taxes on the rich?
A. I would remove loopholes that are being taken advantage of by the rich. I would tax private equity [more]. The inheritance tax should be higher.
Q. Would you raise income taxes?
A. There is this view that if you take the top marginal tax rate up two percentage points, you’ll somehow completely alter the work incentives. I don’t believe that.
Q. Capital gains were taxed at 39.9 percent in the late 1970s. Now the rate is at 15 percent. Would you change that?
A. I wouldn’t start from the presumption that you can’t touch these rates. I would start from the presumption that we need to invest in the future of our youth.
Q. How do you convince wealthy libertarians to pay more taxes?
A. There comes a stage when those who benefit from inequality realize that they better do something about it. You cannot be a good house in a challenged neighborhood.
Q. Is executive pay too high?
A. I am all for shareholders being a lot more interested in how profits and revenues are allocated. …We live in a world of “winner-take-all.” Some of it is good. You want the Steve Jobses of this world to be rewarded. But “winner-take-all” is much higher than in the past. This is where the taxation system can help enormously.
Q. According to Bloomberg, Pimco had a 2013 bonus pool for its 60 managing directors of almost $1.5 billion. Does that make sense?
A. I’m not going to talk about that.
Q. Why write a book on central banks?
A. This is a historic period in which central banks are the only game in town when it comes to policy. But central banks do not have the tools to deliver what the global economy needs. We need more potent reinvigorated growth models.
The West fell in love with the wrong growth models 10 years ago. It fell in love with finance as an enabler of prosperity. The whole society fell in love with leverage and credit as a way of prospering. We were entitled to accumulate debt! People bought homes they could not afford. Governments borrowed money that they could not pay back.
Regulators believed that finance was so sophisticated that you could lessen regulations on it. This romance with the wrong growth model fell apart in 2007 and 2008.
Q. Now what?
A. We are struggling to find a new growth model because the political system hasn’t stepped up to its responsibilities. Obvious things like investing in infrastructure at extremely low interest rates are not being done. The reform of corporate taxation. The reform of labor markets – retraining workers, developing apprenticeships through public-private partnerships.
Either governments and politicians and companies will step up to their economic governance responsibilities and we will turn to something sustainable or, if we don’t, then you will have low growth and financial instability.
Q. How would you fix this?
A. We need a Sputnik moment. Like when we woke up to a satellite being launched successfully [by the Soviet Union in 1957] and our country came behind a vision and there was a unity of purpose. What we desperately need is an economic Sputnik.
Q. How would this Sputnik moment happen?
A. From our politicians realizing that we are wasting the potential of the youth. I am a believer that politicians end up in the right place after taking a few detours. California is a perfect example. Five years ago people felt that the state’s economic future had been permanently impaired. It turned out not to be hopeless. Sacramento implemented reforms.
Q. You’ve written positively about President Obama. Are you an admirer?
A. Yes. His views are well grounded in analysis. He incorporates data. Starting with the jobs speech he gave a few years ago, he has given a clear vision on the economy.
Q. You’ve also said his economic proposals have no chance of being approved.
A. Congress has become obsessed with three words: won’t, can’t, shouldn’t. We have a do-nothing Congress.
Q. If that’s true, as a wealthy man, why don’t you support candidates who believe what you do?
A. I have problems with the role of money in our politics. ... It is not clear to me that money given to politicians brings about the Sputnik moment. I would rather give money to the O.C. food bank.”
Q. Where is your money? Stocks? Treasuries? Bonds?
A. It is mostly concentrated in cash. That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.
Q. So we’re nearing a bubble?
A. Go back to central banks. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something. So they artificially lift asset prices by maintaining zero interest rates and by using their balance sheet to buy assets.
Why? Because they hope that they will trigger what’s called the wealth effect. That you will open your 401k, see it has gone up in price, and you’ll spend. And that companies will see their shares are going up and they will be more willing to invest. But there is a massive gap right now between asset prices and fundamentals.
Q. What do you think of moves by European countries to require that companies include a certain number of women on their boards?
A. Cognitive diversity is critical for the success of any firm. You don’t get there without gender diversity, cultural diversity, and diversity of background. But quotas are tricky. Sometimes the people who oppose quotas most are those who are supposed to be served by them. You risk diminishing their achievements.
Q. You tweet on everything from #Abenomics to #Yellen and you have 60,600 followers.
A. I came to Twitter reluctantly. Now I am hooked! It is a wonderful way to keep up.
Contact the writer: mroosevelt@ocregister.com; Twitter @MargotRoosevelt
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