TCW seemed content with the arrangement and did little to tie its managers' fates to the company as a whole. Few of them, for example, received significant stakes in TCW. That bred frustration in multiple generations of standout performers, who viewed corporate executives (some of whom did receive ownership shares) as getting rich off their toil.So it went for Gundlach, a bona fide investing star who, by the end, oversaw about 70% of TCW's assets, some $70 billion, putting him in charge of one of the biggest pots of money in the country. Gundlach didn't just generate steady returns; he avoided the blowup of the century. A specialist in mortgage-backed securities, he publicly warned in 2007 that "the subprime mortgage market is a total, unmitigated disaster, and it's going to get worse." He invested accordingly, not only delivering positive returns in the blighted year of 2008 but also earning himself a growing role as a media sage. His ego grew along with it.There are few people like Jeffrey Gundlach in the mutual fund world -- or in any world. A former rock-and-roll drummer, Gundlach, 50, is a math whiz (but not a quant). He views everything in binary terms: Either you perform to his standards or you don't, and he won't hesitate to let you know which category you fall into. Nor is he shy in articulating his view of himself. "I was by far the biggest revenue generator at TCW, by far the biggest performer," he says. "I created $4 billion in value for clients in '09. If telling you that is self-promotion, so be it. It's just a fact."
Jass Tpss on 20 Apr 11As banks continue to fail, there is a renewed interest in understanding the causes of financial crisis. Economists have for long tried to understand what causes such crises. There are two views on this: (a) a "sunsopt" view, and (b) a "business cycle" view. The sunspot view argues that the root cause of crisis is depositor "panic". When a substantial number of depositors of a bank begin to believe that a bank is not solvent, they end up starting a self-fulfilling bank run. Given the first-come first-serve nature of demand deposit contracts, every depositor wants to stand first in the line to withdraw his money from the bank. This collective action puts a pressure on even an otherwise solvent bank and drives it to bankruptcy. The business cycle based view instead focuses on fundamental weaknesses in the economy as the key force behind a banking crisis. Under this view, economists argue that banks fail because their illiquid risky investments turn out to be bad. Depositors realize this problem and therefore demand their money back. This leads to an "inefficient" liquidation of the bank and its ultimate failure. While these two views share several common feature, there are many differences in their policy prescriptions. Under the sunspot view, the regulator should try hard to avoid a self-fulfilling prophecy. Regulations such as deposit insurance from the government are geared precisely toward avoiding such runs. Under the business cycle based view, the regulators need to focus their attention more closely on avoiding risky bank behavior and in ensuring smooth liquidation of distressed bank's assets. Of course, a prudent bank regulator should use elements of both these theories to design an optimal bank regulation policy.
