sub prime jack pot

5axis · 01-15-2008, 08:54 AM

No shock to the PPOT regulars

Trader Made Billions on Subprime
John Paulson Bet Big on Drop in Housing Values;
Greenspan Gets a New Gig, Soros Does Lunch

http://online.wsj.com/article/SB120036645057290423.html?mod=todays_us_nonsub_pag e_one

Rick Lee · Rick Lee's Garage

Just read the print version. Check out the side story about his estranged business partner. Fascinating, but I didn't understand it too well. Did Paulson cash in by buying insurance on the cheap? If so, how did that make him a profit? Wouldn't that just have mitigated his losses?

5axis · 01-15-2008, 03:42 PM

The link was sent to me by a riding buddy from the CBOT. I have not had time to work through the details. I'll have to hit him up for his take on it.
A $3-4 B payday is beyond my imagination. That would support my racing/riding addiction for a while

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by 5axis

A $3-4 B payday is beyond my imagination. That would support my racing/riding addiction for a while

It's a ton of money, but it's not like he got it in a day. He built up a very complicated fund, had a huge staff analyze charts and lined up investors. He was already worth into the nine figures before this, so I doubt he was trying to cash in so he could retire early.

5axis · 01-15-2008, 04:02 PM

Quote:

Originally Posted by Rick Lee

It's a ton of money, but it's not like he got it in a day. He built up a very complicated fund, had a huge staff analyze charts and lined up investors. He was already worth into the nine figures before this, so I doubt he was trying to cash in so he could retire early.

No doubt. I am quite aware of how "not simple" this was to pull off. I was a econ /finance nerd before I found something I enjoy doing.

turbo6bar · 01-16-2008, 05:15 AM

Quote:

Originally Posted by Rick Lee

Did Paulson cash in by buying insurance on the cheap? If so, how did that make him a profit? Wouldn't that just have mitigated his losses?

The ABX/CDS are traded like bonds. If a party wants the protection offered by the ABX index, they will pay the market pricing. Paulson profited by buying the ABX when prices were absurdly low and then selling when debt holders were desperate for that debt insurance.

The guy had the right money in place at the right time. The end of the article mentions how his fund will eventually start looking for "opportunities in distressed debt." This guy is a good player. He's bearish when the time is ripe and bullish when all seems lost. The only difference between Paulson and me is his bank account has more zeros.

The Gaijin · 01-16-2008, 05:20 AM

The local tabloid press is beating up on this guy - like he is one of the people to blame for this mess. Yes, like many people here - he saw this train wreck coming and placed his bets in an open market. How these big banks and wall street houses got caught up in this scam is beyond me. Drinking their own kool-aid..

Rick Lee · Rick Lee's Garage

Had Paulson never been born, not one less house would have gone into foreclosure. He had nothing to do with causing the subprime collapse.

I think his biggest crime was donating $15 million to the Center for Responsible Lending. They want total amnesty for subprime homeowners. They're my client too and I really have to hold my tongue when I talk with them. At least a tiny slice of Paulson's money is getting passed through them as my commission check.