Article is a little old, but I found it interesting. Discusses how John Paulson reaped a fortune shorting the housing bubble.
On Wall Street, the losers in the collapse of the housing market are legion. The biggest winner looks to be John Paulson, a little-known hedge fund manager who smelled trouble two years ago. Funds he runs were up $15 billion in 2007 on a spectacularly successful bet against the housing market. Mr. Paulson has reaped an estimated $3 billion to $4 billion for himself – believed to be the largest one-year payday in Wall Street history.
One concern was that even if Mr. Paulson bet right, he would find it hard to cash out his bets because many were in markets with limited trading. This hasn’t been a problem, however, thanks to the wrong bet of some big banks and Wall Street firms. To hedge their holdings of mortgage securities, they’ve scrambled to buy debt protection, which sometimes means buying what Mr. Paulson already held.’ The upshot: The older Paulson credit funds rose 590% last year and the newer one 350%.
Mr. Paulson has tried to keep a low profile, saying he’s reluctant to celebrate while housing causes others pain. He has told friends he’ll increase his charitable giving. In October, he gave $15 million to the Center for Responsible Lending to fund legal assistance to families facing foreclosure. The center lobbies for a law that would let bankruptcy judges restructure some mortgages.
Article worth reading… I had to truncate many interesting parts…
I do not know if Paulson’s profits were moral or not, but if you are a hedge fund manager, your only task is to maximize the returns for your clients.
Wow… and he didn’t use significant leverage on his bets.
We generally don’t use much leverage, which we define as longs to equity. On average, it has been one to one. During the past couple of years, it has been around 0.75 and it has been as high as 1.35 depending on the number and attractiveness of opportunities.
I am not jealous of John Paulson’s wealth or covet anything he has. However, reading that made me extremely disappointed in myself. I am reminded that I am unlikely to make a significant difference in the world and I do not have the means to imitate a person whom I admire. Paulson’s too busy trying to profit from the continuing decline to do significant charitable work now, though. Maybe he might become the next George Soros or Bill Gates after the denouement of this.