In 2006, hedge fund manager John Paulson realized something few others suspectedthat the housing market and the value of subprime mortgages were grossly inflated and headed for a major fall. Paulsons background was in mergers and acquisitions, however, and he knew little about real estate or how to wager against housing. He had spent a career as an alsoran on Wall Street. But Paulson was convinced this was his chance to make his mark. He just wasnt sure how to do it. Colleagues at investment banks scoffed at him and investors dismissed him. Even pros skeptical about housing shied away from the complicated derivative investments that Paulson was just learning about. But Paulson and a handful of renegade investors such as Jeffrey Greene and Michael Burry began to bet heavily against risky mortgages and precarious financial companies. Timing is everything, though. Initially, Paulson and the others lost tens of millions of dollars as real estate and stocks continued to soar. Rather than back down, however, Paulson redoubled his bets, putting his hedge fund and his reputation on the line. In the summer of 2007, the markets began to implode, bringing Paulson early profits, but also sparking efforts to rescue real estate and derail him. By years end, though, John Paulson had pulled off the greatest trade in financial history, earning more than 15 billion for his firma figure that dwarfed George Soross billiondollar currency trade in 1992. Paulson made billions more in 2008 by transforming his gutsy move. Some of the underdog investors who attempted the daring trade also reaped fortunes. But others who got the timing wrong met devastating failure, discovering that being early and right wasnt nearly enough. Written by the prizewinning reporter who broke the story in The Wall Street Journal, The Greatest Trade Ever is a superbly written, fastpaced, behindthescenes narrative of how a contrarian foresaw an escalating financial crisisthat outwitted Chuck Prince, Stanley ONeal, Richard Fuld, and Wall Streets titansto make financial history.
[...]... Southampton The couple who owned the house was in the middle of a divorce Paulson contacted the wife, who sounded eager to sell the property, and together they agreed to a $425,000 price At the closing, though, Paulson was shocked to learn that the home wasn’t the woman’s to sell—there already was a big mortgage on the property For months Paulson kept an eye on the home, as it went through foreclosure and then... that the quality and pricing compared favorably with that available in the United States By then, Alfred had left Ruder Finn, Inc to start his own firm, but he made time to help his son Working together, the Paulsons sold $250,000 of the flooring; his father gave John their entire $25,000 commission The two spoke by phone or wrote daily while John was in Ecuador, bringing them closer together It was John. .. just another merger arb,” says Paulson s friend and initial investor Howard Gurvitch “He wasn’t really on anyone’s radar screen.” But something remarkable was about to happen to the nation, and to the financial markets, an upheaval that would change the course of financial history and transform John Paulson from a bit player into the biggest star in the game 2 T the age of easy money As the World Trade. .. based on expected payments of the pool When Joe Sixpack sent his $1,500 monthly mortgage payment to New Century, the check, along with those of other home owners, would find its way to these “structured” vehicles, where they’d start paying off holders like a cascading waterfall, first to holders of the AAA slice at the top of the pool, and then trickling down to holders of the tranches rated BBB, BBB—... cross the lines of professional behavior Zaharia did agree to have lunch with Paulson, however, and the two began getting together at least once a week, though other employees were in the dark about the budding relationship After more than two hundred meals together, and an occasional Rollerblading outing in Central Park, Paulson realized he was in love and proposed; six months later they wed When Paulson. .. to Paulson to ask for an investment in a brewery he was launching Koch told Paulson that a number of others at the consulting firm, along with several Harvard alumni from Paulson s graduating year, were investing in his company, and that Paulson would regret it if he passed on the opportunity Paulson gave him $25,000 Now the company, the parent of the Samuel Adams brand, was a raging success, and Paulson s... on their doors, eager to hand over fistfuls of cash There were good reasons that hedge funds caught on Just as Winston Churchill said democracy is the worst form of government except for all the others, hedge funds, for all their faults, beat the pants off of the competition Mutual funds and most other traditional investment vehicles were decimated in the 2000–2002 period, some losing half or more of. .. million profit Paulson focused on underappreciated conglomerates selling at inexpensive prices The firm bought a position in TransWorld Corp., a company weighed down by the struggling operations of its TWA Airlines But TransWorld also owned Hilton Hotels, Century 21, and other profitable businesses Levy and Paulson figured that if they broke up the company, investors would focus on the value of the other... offspring of a group of risk-takers, some of whom had met their share of disappointment Paulson s great-grandfather Percy Thorn Paulsen was a Norwegian captain of a Dutch merchant ship in the late 1890s that ran aground one summer off Guayaquil, Ecuador, on its way up the coast of South America Reaching land, Paulsen and his crew waited several weeks for the ship to be repaired, getting to know the growing... from the right families, as designated and approved by his uncle One day, Paulson met a pretty sixteen-year-old at one of his job sites, a young woman who turned out to be the daughter of the chief of police of Salinas He invited her back to his apartment for dinner, asking his cook to whip up something for them to eat The cook quietly called Paulson s uncle to tip him off Soon an associate of Paulson s . up the biggest financial coup in history, the greatest trade ever recorded. All from a rank outsider in the world of real estate investing—could it be? The more I learned about Paulson and the. and Paulson s unlined face suggested someone several years younger. The window of Paulson s corner office offered a dazzling view of Central Park and the Wollman skating rink. This morning, however,. December 1955, Paulson was the offspring of a group of risk-takers, some of whom had met their share of disappointment. Paulson s great-grandfather Percy Thorn Paulsen was a Norwegian captain of a Dutch