May 21 (Bloomberg) -- Alan Greenspan, the former Federal Reserve chairman, has helped Pacific Investment Management Co. make ``billions of dollars'' in his role as a consultant, said Bill Gross, the bond manager's co-chief investment officer.

During a 30-minute discussion on banks several months before the global credit crisis, Greenspan's ``brilliance in terms of forecasting the potential for exactly what happened was a big money saver for us,'' Gross, who runs the world's largest bond fund, said yesterday at a conference organized by the Asia Society in Los Angeles. ``He's made and saved billions of dollars for Pimco already.''

Ben S. Bernanke, Greenspan's successor as head of the Fed, has slashed U.S. interest rates seven times since September, to 2 percent, to prevent a housing market collapse from dragging the world's largest economy into recession. Treasuries gained from July through March, the longest rally since 2000, according to an index compiled by Merrill Lynch & Co., as investors sought the relative safety of government debt.

Greenspan cut the Fed's benchmark interest rate to 1 percent in June 2003, the lowest since 1958, and kept it there for a year. He has recently come in for increased criticism for his handling of the economy and the housing bubble in the years leading up to his retirement from the Fed in 2006.

Laying Blame

House Financial Services Committee Chairman Barney Frank and former Fed Vice Chairman Alan Blinder have faulted Greenspan for lax oversight of mortgage lenders. Critics including Carnegie Mellon University professor Allan Meltzer blame the former Fed chairman for keeping interest rates too low for too long, fueling the surge in house prices.

``He bears some responsibility for the subprime problem,'' said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., a unit of Japan's second-largest brokerage. ``If he had been faster to hike rates, it wouldn't be so severe. The Fed is also responsible for banks, who lent to people who should not have been buying.''

Defaults of subprime mortgages in the U.S. have triggered a worldwide credit crunch, with banks and financial institutions facing more than $380 billion in writedowns and losses related to bad debt. The Merrill Lynch index has returned 6.6 percent since the Fed's first cut on Sept. 18.

Since retiring as head of the Fed in January 2006 after 18 years, Greenspan, 82, signed on in May last year as consultant to Newport Beach, California-based Pimco, which manages more than $800 billion in assets. He is also an adviser to hedge-fund firm Paulson & Co.

Avoiding Housing Mess

Greenspan guided the U.S. economy through its longest expansion and became known for often-cryptic congressional testimony and phrases such as ``irrational exuberance'' that shook up global markets.

Gross, 64, anticipated the collapse of the U.S. housing market and the Fed's subsequent interest-rate cuts. He shunned riskier corporate debt in 2006, a call that caused his fund to lag behind peers. Gross's $128 billion Total Return Fund slipped as much as 4 percent in the first half of 2006.

The decision to sidestep subprime-linked debt has helped the fund surge 12 percent in the past year to beat 95 percent of its rivals, according to data compiled by Bloomberg.

Earlier this year, Gross started piling back into mortgage bonds to take advantage of slumping prices. In April, he lifted his holdings in mortgage-related debt to the highest since 2000, and lowered his stakes in U.S. Treasuries after calling them ``overvalued.''

Going to Asia

As of April 30, Gross's Total Return Fund held 65 percent in mortgage debt, according to data posted on the firm's Web site. The fund also holds 6 percent of assets in emerging-market debt. This year, Gross's Total Return Fund has returned 4.1 percent, beating 94 percent of peers, Bloomberg data show.

``You want to invest where the growth is,'' Gross said yesterday. ``The growth is in Asia and the growth is outside the United States.'' To be invested in U.S. fixed income is to be ``at a disadvantage twice,'' he said.

Pimco is a unit of Munich-based insurer Allianz SE.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: May 21, 2008 12:34 EDT