Trader Made Billions on Subprime

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.

I don’t think there’s anything wrong with his profits. The man made a contrarian bet against the market and was rewarded for it because he saw something that others were too blind to see. Many investors have made a lot of money doing similar thing. But if you are wrong, you are done unless you hedge your bet.

I don’t think he commited a sin because he did not hurt anybody. I know he did not cause the subprime crisis and I doubt he made it worse.

I would never blame short sellers for investments that go bad. They do a good job in making sure securities don’t become overvalued.

Hedge funds run by US manager John Paulson, one of last year’s best performers and a short- seller of UK banks, have bucked a trend of worldwide hedge fund losses by making returns of more than 19% this year.

One fund generated 589.62% in what is thought to be the largest dollar return in a year from a single hedge fund.

Investors said the Paulson Advantage Plus fund was one of the best performers so far this year, with a net return of 19.44% for the year to the end of August. The fund made 158.75% last year and, through a combination of investment gains and new capital, has grown from about $100m (€70m) at the start of 2007 to almost $9bn, Financial News Online can exclusively reveal.

Paulson’s Advantage fund was up 13.22% for the year to the end of August, having made 100.15% last year. Its Credit Opportunities fund was up 12.95%, having made 351.72% last year; its Credit Opportunities fund was up 12.46%, having made 589.62% last year; its Enhanced fund was up 8.17%, having made 116.48% last year; and its International fund was up 5.17%, having made 51.7% last year.

Paulson turned a $500m investment in its Credit Opportunities fund into $3.5bn over the course of last year, considered by investment consultants and investors the largest dollar amount ever generated by a hedge fund in a year.

Paulson & Co. as a whole managed $35bn at the end of June, making it one of the largest 10 hedge fund managers.

John Paulson, a New York-based hedge fund manager, is one of the biggest short sellers of British bank stocks, according to regulatory filings, the Financial Times reported on its website Tuesday.

Paulson, the founder of Paulson & Co, made bets against four of the five biggest British banks. His positions included a 350 million pound bet against shares in Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), a 292 million bet against Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and a 260 million pound bet against Lloyds TSB Group plc (LSB.L: Quote, Profile, Research, Stock Buzz), the newspaper reported.

Those banks are among the 34 financial firms on the short seeling ban list imposed last week by U.K. regulator the Financial Services Authority.

The founder of Paulson & Co., managing roughly $32 billion, recently bought a 10.4-acre lakefront compound less than a mile away for $41.3 million. The seller was Rodney Propp, chairman of a Manhattan property firm.

The Southampton, N.Y., house he’s listed is a seven-bedroom “cottage” on three acres with an enclosed pool and sauna and a detached garage. He bought it two years ago from Jurgen Friedrich, a director of clothing company Esprit Holdings, for $12.75 million, records show.

The trader’s 15,000-square-foot new house was built in 1911 and fully renovated, and comes with separate staff quarters, two other houses, a three-car garage and a pool. The property, called “Old Trees,” has about 450 feet on Lake Agawam and ocean views. It was listed for $48 million in 2006.

Paulson is still making money. And that is nice house.

The Secretary of the Treasury will get $700 Billion to spend as he sees fit.

Although it is Paulson right now, there is no telling who the next Secretary of the Treasury will be … and he or she could do almost anything with it.

One report said it could even be spent overseas.

Or given to organizations with no accountability.

So what. Your hereo George Soros had no problem trying to turn a buck on the sub-prime lending mess either. He owned 1,784,957 shares of Countrywide, to bad he bet the wrong way.

John Paulson and Hank Paulson are two different people.






Thanks for the correction.

Here’s an article from Terry Keenan’s column in the NY Post of Sept 28th about JOHN Paulson.

Still, for my money, the stock of former Fed Chief Alan Greenspan deserves the highest multiple in what could be called the audacity-to-outrage ratio. The audacity of Greenspan’s actions is high, while the popular outrage still remains remarkably low.

Sure, the “Maestro’s” central role in the formation of the housing bubble and his cheerleading of adjustable-rate mortgages in 2004 are enough to single him out for special scorn.

But it is Greenspan’s activities since leaving the Fed chairmanship in 2006 that should leave every American disappointed and dismayed.

That’s because Greenspan - to the exclusion of all others often mentioned as culpable in the credit collapse - is making mega-bucks helping a major hedge fund profit from the devastation he helped create.

All year long, Greenspan has been advising John Paulson, the mother of all short sellers - the man who reportedly has made a personal fortune of more than $3 billion correctly betting against the housing market.

In January, Greenspan joined the board of Paulson and Company. His mission according to the Financial Times: “to advise on the potential for and severity of a US recession.” Since Greenspan must know where the bodies are buried, the value of his unfettered advice is incalculable.

Now, I have no problem with Mr. Paulson. Indeed given his prescience on the housing debacle, one could argue that President George Bush picked the wrong Paulson to be Treasury Secretary. What I do have an issue with is the chutzpah of a former Fed Chairman putting himself in a position to benefit from the deflating of a bubble he almost single-handedly helped inflate.

Wasn’t the multi-million dollar book deal enough, Alan? The hundred thousand dollar speeches? At the same time that the SEC is banning shorting selling in more than 800 companies, Greenspan is advising the most-profitable short seller in the nation. It just doesn’t pass the smell test at a time when the odor emanating from the economy is almost overwhelming.

At the end of the day, I guess I’m just a little more than disappointed in Ol’ Al and sorry that he’s on the Outrage Exchange altogether. This once humble public servant seems to have sold out for a few bucks in his twilight years. Bucks that, by the way, are worth a lot less now than when he became Fed chairman back in 1987.TERRY KEENAN is anchor of Cashin’ In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail


But it came in just now … about … Henry Paul son Paulson person.

[Are you SURE they are two different people???]

Click here for the link below that didn’t translate.

Your Seat in the Corporate Boardroom

October 2, 2008

Hank Paulson “Looking for Land Deals”

We are pleased to announce that programs run by the Free Enterprise Education Institute will now operate as the Free Enterprise Project under the National Center for Public Policy Research (NCPPR). By joining the center we will improve our ability to communicate the dangers to limited government and liberty posed by liberal CEOs.

Since 1982 NCPPR has aggressively promoted the principles of free markets, individual liberty and personal responsibility. The center previously supported many of our shareholder advocacy efforts including our actions against Caterpillar and Goldman Sachs so they make a great partner to advance our goals.

And speaking of Goldman Sachs, many of you will recall we are long time critics of Treasury Secretary Hank Paulson who is the driving force behind the mortgage “bailout” bill.

In 2006, our first shareholder advocacy action focused on Paulson’s use of Goldman Sachs’ assets to support his environmental hobby. Under Paulson’s leadership, Goldman Sachs purchased distressed debt for over 600,000 acres of land in Chile. Following the purchase, the land was donated to a non-profit environmental organization where Paulson’s son served as an adviser. At the time, in addition to being CEO of Goldman Sachs, Paulson was also chairman of The Nature Conservancy.

In addition:

Paulson and Goldman Sachs profited from the subprime mortgage business and the company supported questionable actions of Fannie Mae.

Paulson has a history of using his professional power to ‘get back’ at perceived enemies.

Paulson served as chairman of The Nature Conservancy at the time the green charity lent money to its own executives and sold land to its own trustees. Following a widely-read expose of these and other controversial practices in the Washington Post Paulson himself admitted that “we need to tighten up our oversight and risk management controls…”

For more on Paulson read the press release: An “Ubersecretary Paulson” Would Be a Bad Idea

Steve Milloy
Tom Borelli

Free Enterprise Project

To avoid confusion, here is part of what one of the links results in [sort of]

[Have you had a DNA test done on Paulson Paulson … ???]

tunities to punish his enemies and promote his friends," said Milloy. “Engineering the sale of Bear Sterns at a fire sale price and allowing Lehman Brothers to go bankrupt while making efforts to save Goldman Sachs should raise serious questions about Paulson’s personal agenda. Having served in the Nixon Administration it seems Paulson took careful notes in the creation and execution of an enemies list. Let’s not forget that under Paulson’s leadership Goldman Sachs made millions by creating the mortgage crisis.”

“Given Paulson’s record of using his position to advance his personal agenda should automatically disqualify him from granting him unprecedented power,” added Borelli. “Why should the country trust Paulson with his track record of using distressed debt to support his environmental hobby? If Paulson gave away shareholder assets to support his personal interests just imagine what he would do with the taxpayers’ property.”

In 2006, Borelli and Milloy sent a letter to then-Senate Finance Committee Chairman Charles Grassley (R-IA) and Ranking Member Max Baucus (D-MT) alerting them of a complaint the mutual fund they manage had filed with the U.S. Securities and Exchange Commission requesting “an investigation by the [SEC] Division of Enforcement into potentially false and misleading statements of material facts made by Goldman and its senior management relating to Goldman’s acquisition and disposition of certain real property…” (See:

Milloy and Borelli also have written a series of articles questioning some Paulson’s practices, including “Treasury Nominee Hank Paulson Needs to Answer Some Questions” (Steve Milloy, Human Events, 6/13/2006 at, “Hank Paulson Was Thrown Softballs” (Steve Milloy and Tom Borelli, Human Events, 7/03/2006, at, and “Treasury Nominee Is Ideologically, Ethically Challenged” (Steve Milloy, Human Events, 5/30/2006 , at

The government watchdog group National Legal and Policy Center has also questioned Paulson’s record in a series of documents available at

The Free Enterprise Project is a program of the National Center for Public Policy Research, a non-partisan think-tank established in 1982.

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.

I sincerely pray it is not for love of money that these, and many like them, pursue these activities geared toward building of obscene wealth.

Because if it is, knowing the pain they will endure for eternity is almost too terrible for me to think about. I would never wish this on my worst enemy.


John Paulson continues to turn bad news for the markets into good news for his investors.

Amid what might have been the worst-ever month for the hedge fund industry, Paulson & Co.’s Advantage Plus Fund added another 4.3%, Bloomberg News reports. The fund, which returned better than 150% last year—one of several Paulson hedge funds to post triple-digit returns in 2007, helping its assets under management to balloon to $35 billion—is now up 24.6% on the year.

Another Paulson fund, the Advantage Fund, is also enjoying positive, if more modest, returns amid the market carnage. It rose 1.58% last month and is up 15% on the year

Three of the most well-respected and successful hedge fund managers in the business are waving the white flag, in a sense.

Steven Cohen, Israel Englander and John Paulson are not riding the market turmoil, moving billion of dollars into cash during the ongoing financial monsoon. In recent days, Cohen has moved about half of SAC Capital Advisors’ $14 billion in assets into money-market funds and other short-term securities, according to The Wall Street Journal. Englander, whose Millennium Partners also manages $14 billion, has moved $6 billion into cash, while Paulson also has about 70% of his $35 billion Paulson & Co.’s assets in cash or cash equivalents.

What’s more, Cohen plans to stay out of the stock market until the end of the year, save for a small portfolio he personally trades, the Journal says.

The trio is part of an avalanche of about $400 billion in hedge fund assets recently moved into cash, according to Goldman Sachs. The sell-off by hedge funds contributed in part to the huge losses suffered by the stock market in recent weeks. Paul Tudor Jones of $18 billion Tudor Investment Corp. also made a big move into cash after watching the Mexican peso tumble at the beginning of the month, Bloomberg News reports.

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