Mary Childs, author of 'The Bond King', joins Yahoo Finance Live to discuss her new book on PIMCO Co-Founder Bill Gross.

Video Transcript

JULIE HYMAN: For people who maybe are not as familiar with Bill Gross, even though the story is engaging on its own, just because he is such a character, what would you tell people who are sort of new to his story about why he is such an interesting and important figure in the US financial world?

MARY CHILDS: Yeah, it's such a great question. And it's one I get a lot where I think, in my personal opinion, that the bond market is sort of underappreciated in its role in the global financial market. We in the financial press, of course, get it, and we talk about it all the time. But I think in the kind of broader world, we talk about the stock market. We talk about some more, I think, lighthearted stuff where, in my view, the bond market is where rubber meets road.

And in thinking about that, Bill Gross was so foundational to the creation of the bond market as we know and love it today. So trying to think about PIMCO and Bill sat at this inflection point in our economy for so long. And there was just such a tremendous amount of influence in this one pocket that I really felt like was very underappreciated and kind of-- people just weren't that aware of who they were and what they did.

So in my opinion, it was kind of a tough sell of, like, you need to understand this because it's eating your peas and carrots. But in this case, it's not. I think it's a fun enough and engaging enough story, and the people are so fascinating, that it's not just doing your homework of learning about the bond market. But hopefully, you do learn all that along the way.

JULIE HYMAN: It's definitely not like eating your peas and carrots. The excerpt that I read, there's a lot of-- I don't know. I mean, Gross is known as an eccentric figure, I think it's safe to say. And so it's also intriguing that he is such a powerful figure at the same time that he was this unusual guy.

I would ask, in reporting this out, was there one story or detail that you uncovered that surprised you the most or delighted you the most when you were looking at his life?

MARY CHILDS: Oh, wow, such a good question. And there are so many that come to mind. I think as far as surprising, certainly the events of the later years of his life were-- he's out there, still basically making headlines, and I think for things that he would rather not be making headlines about. And those have really surprised him.

His divorce, a couple of years ago, was in the headlines and on the front page of "The New York Post." And that was surprising. The way that he behaved in that situation was really kind outside of the scope of what I had expected. And then subsequently, he got in a fight with his next-door neighbor in Laguna Beach. And that also, I think, has been sort of outside the scope of what I expected him to be doing.

But he is such a fascinating person. And I think the best part about him as an interviewee and as a subject is that he's so reflective. So he knows-- nine times out of 10 if he's about to do something that he shouldn't do, he absolutely knows that he shouldn't do it. And then he just does it anyway. So I think for me, that makes him a really rich and interesting kind of character in a book but also just a fascinating person.

BRIAN SOZZI: Mary, is there an event that you can point to that just changed him personally over the last few years of his career at PIMCO, something that changed his behavior? Because he did seem like a different guy by the time he left PIMCO compared to where he was mid-career and then, of course, when he started at the company.

MARY CHILDS: Yeah, I think it also feels a bit obvious. But when Mohamed El-Erian left PIMCO, I think Bill took that really personally. And I think that was really destabilizing for him. His behavior in the aftermath really felt a bit more like a person going through a divorce and not actually like a professional departure and management transition.

And I think that was a lot because the trust had been fractured, in his view. And he felt betrayed. And it was much more emotional than these things maybe normally are or maybe optimally should be.

And I think that he also had been kind of disturbed in the years before that. In 2011, he had a really bad bet in the Treasury market. And for someone like Bill Gross who measures kind of himself by his performance, he bases so much, in my view, on how he's doing in the market, that I think that was destabilizing. And the Mohamed El-Erian departure was such a blow.

And that relationship disintegrating was one thing, but him just leaving-- I think Bill kind of felt high and dry. And more or less, in my view, he never recovered from that at PIMCO.

JULIE HYMAN: When it comes to the bond market itself, what is the legacy of Bill Gross? I mean, he made some sort of permanent changes in the way that the bond market operated and that people traded it. What do you think is sort of the most important changes that he made?

MARY CHILDS: Well, I mean, there are so many potential answers here too, where I think he really helped to push the interest and kind of the prevalence of investing in mortgage-backed securities. They were very early to it in, like, the 1980s and very enthusiastic about it. And I think that their abilities in investing in mortgage-backed securities helped to inspire others.

People were like, oh, they're doing so great at this. Maybe I should try too. And I do think that helped fuel the growth in that market. And that's true in a lot of different--

They have been very enthusiastic, Bill and some of his compatriots, like Chris Dialyas at PIMCO, they really embrace derivatives and are not afraid of complexity. And I think that can be a great thing. Innovation is great. Financial innovation can be very helpful. But at a certain point, you're engineering for the sake of engineering, or you're a bit too clever for your own good.

And the kind of social utility of these products escapes me at a certain point. And so I think this kind of financialization, obviously, it's been a much broader trend. And it's not to say that Bill Gross created or invented it. But I think he very much pushed it and very much embraced it and helped to kind of create more interest in very complicated securities. And let's put on an enormous bet in CDS and take this ridiculous amount of risk in a mutual fund.

And I think all of those things kind of wrapped up together, it's like this swashbuckling attitude that, of course, is not foreign to Wall Street. But the more you do it and the more someone like Bill Gross does it, the more it makes room for other people to do it too and kind of push the boundaries even further.

JULIE HYMAN: Well, and to sort take that as the last question, if we could, who is his successor? Is it somebody like a Jeff Gundlach, who I think some people, maybe himself, call himself the new bond king? I don't know. Or are there other figures out there who we should be watching?

MARY CHILDS: I think Jeffrey Gundlach, to my knowledge, does not call himself the bond king. He has called himself the godfather and, I believe, the pope. So it's an important distinction.

JULIE HYMAN: [LAUGHS]

MARY CHILDS: But I do think the way people respond to Jeffrey Gundlach is very similar to the way they responded to Bill Gross. So I think in that way, yes, that absolutely feels like the next generation.

Bill just self-published a memoir. And he said that Jeffrey Gundlach does not deserve the title. And he would crown Scott Minert were it within his power. So I mean, I think that's an interesting tidbit. But I also wonder too if we're a bit beyond needing a king.

If there's a world in which we don't have to deify our star mutual fund managers or star fund managers and have kind of, in a way, wised up to the flaws in that model, that might be expecting a bit much. But I do think there's less of the kind of centralization of this kind of, oh, he knows what's going on. He's going to tell us what to do.

JULIE HYMAN: Yeah, well, in part because the past couple of years have told us that nobody knows what's going on or--