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The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
In 2006, hedge fund manager John Paulson realized something few others suspected--that the housing market and the value of subprime mortgages were grossly inflated and headed for a major fall. Paulson's 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 also-ran on Wall Street. But Paulson was convinced this was his chance to make his mark. He just wasn't 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 year's end, though, John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm--a figure that dwarfed George Soros's billion-dollar 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 wasn't nearly enough.
Written by the prizewinning reporter who broke the story in The Wall Street Journal, The Greatest Trade Ever is a superbly written, fast-paced, behind-the-scenes narrative of how a contrarian foresaw an escalating financial crisis--that outwitted Chuck Prince, Stanley O'Neal, Richard Fuld, and Wall Street's titans--to make financial history.
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 year's end, though, John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm--a figure that dwarfed George Soros's billion-dollar 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 wasn't nearly enough.
Written by the prizewinning reporter who broke the story in The Wall Street Journal, The Greatest Trade Ever is a superbly written, fast-paced, behind-the-scenes narrative of how a contrarian foresaw an escalating financial crisis--that outwitted Chuck Prince, Stanley O'Neal, Richard Fuld, and Wall Street's titans--to make financial history.
304 pages, Hardcover
First published November 1, 2009
About the author
Gregory Zuckerman
10 books340 followersGregory Zuckerman is a Special Writer at The Wall Street Journal, a 25-year veteran of the paper and a three-time winner of the Gerald Loeb award -- the highest honor in business journalism.
Greg is the author of six books: A Shot to Save the World: The Inside Story of the Life-or-Death Race for a COVID-19 Vaccine; The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution; The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters; The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History; Rising Above: How 11 Athletes Overcame Challenges in Their Youth to Become Stars and Rising Above: Inspiring Women in Sports.
Greg lives with his wife and two sons in West Orange, N.J., where they enjoy the Yankees in the summer, root for the Giants in the fall, and reminisce about Linsanity in the winter.
Greg is the author of six books: A Shot to Save the World: The Inside Story of the Life-or-Death Race for a COVID-19 Vaccine; The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution; The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters; The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History; Rising Above: How 11 Athletes Overcame Challenges in Their Youth to Become Stars and Rising Above: Inspiring Women in Sports.
Greg lives with his wife and two sons in West Orange, N.J., where they enjoy the Yankees in the summer, root for the Giants in the fall, and reminisce about Linsanity in the winter.
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Displaying 1 - 30 of 234 reviews
April 13, 2011
This book was quite a disappointment.
The author spends most of the book talking about whether someones mother grew up in a poor family, middle class, or rich.
When they played tennis, went swimming, picked their nose.
What vintage wine they had for dinner.
Mostly gossip about how people behaved.
At the beginning he gushed so much about how clever etc people were,
it sounded like he was their mother.
As the book progressed more than 90% of the details of personal behavior became unflattering.
A bunch of pycho's getting $50 million a year while they edged towards a nervous breakdown.
At the end when profits started coming,
he quickly finished the book with minimal details.
What did I learn from the book?
It's almost impossible for individuals to play the CDS game,
you have to be a hedge fund, bank or insurance company to play.
That's about it.
I already knew that people who work on Wall street are
rude, obnoxious, greedy braggarts.
Most of the CDS's I've read about require an initial margin that is often quite large,
the author ignored this and made it sound like you only needed to pay the annual premium.
And I don't think he ever mentioned that the buyer of a CDS is OBLIGATED to pay the premium
every year till the end of the contract.
Which is usually 5 years.
He made it sound like insurance where a person can stop paying whenever they like.
Over 300 million people in Amerika,
someone was bound to make the bet at the right time,
a number of people were mentioned who were either too early or
too late to the game and they didn't make the big killing.
Paulson was the lucky one who made the bet at just the right time.
On p32 he said Paulson was required to take a personality test by a possible investor.
He didn't pass.
One wonders whether it was a benign test like Myers-Briggs or
something more invidious like the MMPI.
The author spends most of the book talking about whether someones mother grew up in a poor family, middle class, or rich.
When they played tennis, went swimming, picked their nose.
What vintage wine they had for dinner.
Mostly gossip about how people behaved.
At the beginning he gushed so much about how clever etc people were,
it sounded like he was their mother.
As the book progressed more than 90% of the details of personal behavior became unflattering.
A bunch of pycho's getting $50 million a year while they edged towards a nervous breakdown.
At the end when profits started coming,
he quickly finished the book with minimal details.
What did I learn from the book?
It's almost impossible for individuals to play the CDS game,
you have to be a hedge fund, bank or insurance company to play.
That's about it.
I already knew that people who work on Wall street are
rude, obnoxious, greedy braggarts.
Most of the CDS's I've read about require an initial margin that is often quite large,
the author ignored this and made it sound like you only needed to pay the annual premium.
And I don't think he ever mentioned that the buyer of a CDS is OBLIGATED to pay the premium
every year till the end of the contract.
Which is usually 5 years.
He made it sound like insurance where a person can stop paying whenever they like.
Over 300 million people in Amerika,
someone was bound to make the bet at the right time,
a number of people were mentioned who were either too early or
too late to the game and they didn't make the big killing.
Paulson was the lucky one who made the bet at just the right time.
On p32 he said Paulson was required to take a personality test by a possible investor.
He didn't pass.
One wonders whether it was a benign test like Myers-Briggs or
something more invidious like the MMPI.
May 6, 2016
Greatest trade ever:
1. Ability to explain complex ideas in simple terms .
2. A sales man's job starts when the customer says no.
3. Merger arbitrage: long acquisition target and short acquirer. Low risk and high promise of potential fortune.
4. Watch the down side , upside will take care of it.
5. Charming and fun and showed interest in woman, which made woman love him.
6. Never give up. Never give up.
How much can we loose on this trade?
7. Big upside yet limited down side.
8. Even after concluding better odds for their trade, they kept questioning their assumptions and reaching out to various sources to validate their thesis. Constant questioning of investment thesis is the lesson here.
9. Hedge fund manager performance is judged on quarterly and yearly basis by investors , friends and community. They are under constant focus and pressure to perform .
You can be totally right on an investment but wrong on timing and loose a lot.
10. Awareness of investment bubble is only valuable when you know how to profit from it.
11.Though the abx index is going up and down or portfolio worth is going up and down and bear stern trying to manipulate the market, collecting data on fundamentals and stick to the analysis and keeping emotions go out of control are paulson's strengths.
12. Investors want managers who can provide better returns, but if things go up fast they get nervous because they don't understand the securities being traded. If things go down, then also they get nervous and puts pressure on the manager.
13. Identifying the trade, waiting for the right time to start the trade, incrementally adding to the position and finding the right time to start selling and selling gradually (to remove some risk) and finally closing the trade after waiting for scenario played out almost.
14. Extremely low interest rates, key ingredient in past bubbles, have the potential to inflate the next one .
Massive public sector borrowing , harder to reduce than to extend , will sow the seeds for next financial bubble.
15.Growth stemming from bank credit and government deficit seems more unstable than an expansion driven by innovations and rising productivity .
16. Paulson and others who made money were largely outsiders to mortgage and real estate game, amateurs may have the best opportunity to identify and profit from bubbles.
17. Financial pros increasingly form their views by watching the same business television broadcasts and reading same articles , creating an opening for those on the outside willing to challenge the conventional wisdom.
1. Ability to explain complex ideas in simple terms .
2. A sales man's job starts when the customer says no.
3. Merger arbitrage: long acquisition target and short acquirer. Low risk and high promise of potential fortune.
4. Watch the down side , upside will take care of it.
5. Charming and fun and showed interest in woman, which made woman love him.
6. Never give up. Never give up.
How much can we loose on this trade?
7. Big upside yet limited down side.
8. Even after concluding better odds for their trade, they kept questioning their assumptions and reaching out to various sources to validate their thesis. Constant questioning of investment thesis is the lesson here.
9. Hedge fund manager performance is judged on quarterly and yearly basis by investors , friends and community. They are under constant focus and pressure to perform .
You can be totally right on an investment but wrong on timing and loose a lot.
10. Awareness of investment bubble is only valuable when you know how to profit from it.
11.Though the abx index is going up and down or portfolio worth is going up and down and bear stern trying to manipulate the market, collecting data on fundamentals and stick to the analysis and keeping emotions go out of control are paulson's strengths.
12. Investors want managers who can provide better returns, but if things go up fast they get nervous because they don't understand the securities being traded. If things go down, then also they get nervous and puts pressure on the manager.
13. Identifying the trade, waiting for the right time to start the trade, incrementally adding to the position and finding the right time to start selling and selling gradually (to remove some risk) and finally closing the trade after waiting for scenario played out almost.
14. Extremely low interest rates, key ingredient in past bubbles, have the potential to inflate the next one .
Massive public sector borrowing , harder to reduce than to extend , will sow the seeds for next financial bubble.
15.Growth stemming from bank credit and government deficit seems more unstable than an expansion driven by innovations and rising productivity .
16. Paulson and others who made money were largely outsiders to mortgage and real estate game, amateurs may have the best opportunity to identify and profit from bubbles.
17. Financial pros increasingly form their views by watching the same business television broadcasts and reading same articles , creating an opening for those on the outside willing to challenge the conventional wisdom.
June 9, 2013
This was a superbly well written book that had a lot more depth than one would expect from a book on this subject.
Zuckerman did well to extend the story beyond just John Paulson as there were also other characters that played a large role that added to the overall story. This is a classic tale of a few that defied conventional wisdom and went against the flow.
At the time these individuals starting putting the pieces together for this trade of a lifetime, it was common knowledge that nationwide home prices never fell, at least since the Great Depression if people bothered to look back that far.
It requires a completely different attitude to go against the what everyone knows to be true and has a self interest in continuing to believe is true. The amount of public ridicule and mocking these individuals had to endure was extreme. From entire firms to their parents there was no support shown, nor anyone willing to look at the simple math.
The most common statement was, "This is very simple, if it was true the smart people would have already picked up on it." It didn't help that none of them had a real estate ground. This however hits at the core of the issue. Often those most knowledgeable on a subject are blinded to the truth while outsiders can spot the obvious.
The only drawback of this trade was it accompanied a collapse of the housing markets that has inflicted untold pain upon millions (albeit they were not innocent victims). So while the trade itself is epic it is not exactly something that makes for good front page material (the trades were legal). Had the pain been inflicted upon some other parties in a manner like George Soros did when taking down the pound this would have been better received.
Zuckerman did well to extend the story beyond just John Paulson as there were also other characters that played a large role that added to the overall story. This is a classic tale of a few that defied conventional wisdom and went against the flow.
At the time these individuals starting putting the pieces together for this trade of a lifetime, it was common knowledge that nationwide home prices never fell, at least since the Great Depression if people bothered to look back that far.
It requires a completely different attitude to go against the what everyone knows to be true and has a self interest in continuing to believe is true. The amount of public ridicule and mocking these individuals had to endure was extreme. From entire firms to their parents there was no support shown, nor anyone willing to look at the simple math.
The most common statement was, "This is very simple, if it was true the smart people would have already picked up on it." It didn't help that none of them had a real estate ground. This however hits at the core of the issue. Often those most knowledgeable on a subject are blinded to the truth while outsiders can spot the obvious.
The only drawback of this trade was it accompanied a collapse of the housing markets that has inflicted untold pain upon millions (albeit they were not innocent victims). So while the trade itself is epic it is not exactly something that makes for good front page material (the trades were legal). Had the pain been inflicted upon some other parties in a manner like George Soros did when taking down the pound this would have been better received.
September 8, 2014
Bubbles tend to burst. Secondhand people will go down. Think independently.
February 23, 2016
Another story to come out of the financial crisis of 2008 with mind boggling numbers in losses and profits, irresponsibility, and shrewdness. John Pauison went from being a relatively unknown merger-arbitrage guy running $300 million dollars, on Wall Street, small fry to a whale who made the largest gain on investment in financial history. In 'The Greatest Trade Ever: The Behind the Scenes Story of How John Paulson Defied Wall Street and Made Financial History' by Gregory Zukerman readers get a very candid view of how the insights led by Paulson and others who decided to short the housing market when that comes from breaking away from the herd mentality that surrounds Wall Street.
"For Paulson, it all boiled down to one chart which Pellegrini produced showing the inflation-adjusted growth in housing prices over time divided by wage growth. The data clearly showed a rapid explosion upward away from the general trend starting in 2000. He assumed this trend would not continue indefinitely and revert (even overshoot). He was right." Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. His firm, Paulson & Co., would make $15 billion in 2007.
Paulson's key hire was Paolo Pellegrini, an analyst who was on his way out of the market after multiple fails in the financial world was given a last chance when Paulson offered him a job. Pellegrini convinced John Paulson of the danger of weak credit underwriting standards, excessive leverage among financial institutions and a fundamental mispricing of credit risk particularly in the housing market. Each day at work he came in early and ploughed through the data to find an angle to put him back in the game. "The answer was in front of him: Housing prices had climbed a puny 1.4% annually between 1975 and 2000, after inflation. But they had soared over 7% in the following five years, until 2005. The upshot: U.S. home prices would have to drop by almost 40% to return to their historic trend line. Not only had prices climbed like never before, but Mr. Pellegrini's figures showed that each time housing had dropped in the past, it fell through the trend line, suggesting that an eventual drop likely would be brutal."
John Paulson made his hugely bearish housing trade, making his "Soros trade - referring to the famous 1992 bet against the British pound which netted Soros' fund $1 billion. He is now shorting the U.S. dollar by investing heavily in gold.
Gregory Zuckerman writes in a blow by blow narrative that is easy to follow despite all the financial gobbledygook. John Paulson's story is an interesting read and it is right at the heart of the worst malpractice of the large investment banks who couldn't see the disaster they were bringing down on the American and world economies.
"For Paulson, it all boiled down to one chart which Pellegrini produced showing the inflation-adjusted growth in housing prices over time divided by wage growth. The data clearly showed a rapid explosion upward away from the general trend starting in 2000. He assumed this trend would not continue indefinitely and revert (even overshoot). He was right." Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. His firm, Paulson & Co., would make $15 billion in 2007.
Paulson's key hire was Paolo Pellegrini, an analyst who was on his way out of the market after multiple fails in the financial world was given a last chance when Paulson offered him a job. Pellegrini convinced John Paulson of the danger of weak credit underwriting standards, excessive leverage among financial institutions and a fundamental mispricing of credit risk particularly in the housing market. Each day at work he came in early and ploughed through the data to find an angle to put him back in the game. "The answer was in front of him: Housing prices had climbed a puny 1.4% annually between 1975 and 2000, after inflation. But they had soared over 7% in the following five years, until 2005. The upshot: U.S. home prices would have to drop by almost 40% to return to their historic trend line. Not only had prices climbed like never before, but Mr. Pellegrini's figures showed that each time housing had dropped in the past, it fell through the trend line, suggesting that an eventual drop likely would be brutal."
John Paulson made his hugely bearish housing trade, making his "Soros trade - referring to the famous 1992 bet against the British pound which netted Soros' fund $1 billion. He is now shorting the U.S. dollar by investing heavily in gold.
Gregory Zuckerman writes in a blow by blow narrative that is easy to follow despite all the financial gobbledygook. John Paulson's story is an interesting read and it is right at the heart of the worst malpractice of the large investment banks who couldn't see the disaster they were bringing down on the American and world economies.
July 11, 2014
Zuckerman does a good job of taking a modern history lesson and turning into an interesting narrative. While the book could use some trimming due to some scenes that do not really drive the plot anywhere and therefore unnecessary, i suspect they are there to illustrate the level of research the author conducted in order to weave an accurate yet entertaining story. This is another book I would not have read if it had not been assigned to me, yet I found it engaging and entertaining providing pertinent information of the mortgage crisis of the late 2000s without seeming dry and hard to follow.
April 4, 2016
Excellent examination of the financial meltdown of 2008-2009
This is an excellent book for understanding the events leading up to the financial meltdown of 2008-2009, explaining the key individuals that foresaw the problems and the financial instruments that were the root of the problem.
This is an excellent book for understanding the events leading up to the financial meltdown of 2008-2009, explaining the key individuals that foresaw the problems and the financial instruments that were the root of the problem.
March 13, 2016
A fascinating book greedy people who profited by the 2008 shattering of the economy. It was all about the money; none of these folks seemed to give a damn about the larger issues or the folks who got slammed.
Hey, I got mine, so screw you.
Zuckerman does a good job telling the tale; you just won't feel good about the big winners in it.
Hey, I got mine, so screw you.
Zuckerman does a good job telling the tale; you just won't feel good about the big winners in it.
December 12, 2014
Great book by a very good writer. He tell a very compelling story of a few professional investors who went against the main investment tide and bet against housing market. When housing market collapsed, they made billions. Zuckerman turns non-fiction in to a page turner.
November 2, 2015
Great book. Unlike the Big Short this book deals with John Paulson and follows his ability to make the largest successful bet in financial history. Both books are great but if I had to pick one I would personally go with this one
August 9, 2015
Great read! A must-read for all traders. Love your art, know your market, learn new markets.... All of that helps solidify your legacy. And, trading, is ultimately about sculpting your legacy.
May 6, 2016
Great stuff
Complex topic explained clearly
Complex topic explained clearly
July 9, 2012
This book was awesome. Did not expect that at all. Had the idea that it would be a long WSJ article in book form, but the author put life into the narrative and the exciting (ha) world of hedge fund management. The book outlines the back-story of John Paulson’s adroit navigation of the housing bubble and the staggering profits he earned for his fund investors. His bearish view on the housing market was diametrically opposed by the street, hence his ability to reap so much rewards for his prescient navigation of the housing bubble. Paulson’s conviction allowed him to stay in his CDS positions during’ tough’ times (when the mortgage indices rose in value) and maximized profits when most investors in his position would have sold much earlier and realize profits pre-maturely.
Paulson was traditionally a M&A guy, making money on mergers and acquisitions during the 1990’s. His method shorted the acquiring firm and longed the firm being acquired. (the stock of the acquiring firm traditionally rises on news of a buyout and the purchasing company stocks dips in value.)
Hedge funds where first introduce d 1940’s, a fund managed by a private firm for private investment. The rules for hedge funds where different from mutual funds, with clients money being locked up for a certain period, and typical split of 80/20 gains. Hedge funds receive capital from wealthy individuals, institutional endowments, pensions, and governments. The number of hedge funds raised precipitously during the late 90s’ and 2000’s, no doubt due to the bull markets. SEC requirements for hedge funds are murky, with less stringent guidelines.
It all started with home loans. Borrowers that banks used to deny mortgages were eagerly sold ‘sub-prime’ mortgages with teaser rates, or interest only loans. Credit was easy to get a hold of. Annual incomes where not verified. No down payments where required. In addition to getting easy home loans, banks were also offering home equity loans, further indebting borrowers. By 2005 25% of all mortgages where ‘non-prime’. Everyone in the country was excited about home ownership. 69% of Americans owned a home…(That figure is a misnomer. I’d call home ownership when you own it outright, not just making monthly payments). Greenspan opaque rhetoric at the FED indicated all was well.
Wall Street is involved when the home loans where ‘securitized’. Mortgage companies would package the loans and sell them to investment banks. The investment banks would then re- package all the home loans and sell the resultant tranche slices to investors. The complex vehicles were created called Collatorized-Debt Obligations (CDOs). The raw revenues of these mortgage payments, with the most lucrative interests originating with sub-prime borrowers provided revenue. The investors of these CDOs and other mortgage derived loans where Swiss banks, pension plans, Australia, US insurance companies, and some iBanks kept them themselves (Leaman, Bear Sterns, etc.). These tranches and where mixed in with other loans (auto mobiles, air plans, etc.) and received high ratings from Moody’s. (AAA).
The market demand for this securitization product could not be met. Investors loved the high interest rates and couldn’t get enough of them. Enter the ‘Synthetic” investment, the Credit-Default Swap. Gregg Lippman, also a subject of the book albeit a minor one compared to Paulson, with a group of other Ibanks struggling to provide for the demand of Securitized home -loan based products, wanted to further capitalize on the housing market. CDS is essentially insurance on the payments of the CDO type investment vehicles. The value of the contract is inversely related to the value of the mortgage back security and tradable. As the value of the CDO went down, the insurance (CDS) gained in value. The CDS is called a ‘Negative carry” type investment, as opposed to the traditional “Positive Carry” preferred by most investors. The buyer of the CDS paid monthly installments to the issuer of the insurance. Not sure what exactly the ratio, but 1 Billion worth of insurance could be purchased for say 20 Million dollars. (2%). If the CDO would lose value, the price of the CDS contract would go up. The CDS contracts could be traded. This allowed for the bearish positions. The CDS issuers where glad to receive the monthly payments on this insurance, enjoying the steady stream of revenue paid by Paulson hedge and other CDS holders. Payday would come though.
The market for CDS is not as liquid as the stock market, but there was a market for them, and as you would expect, especially during the unraveling of the housing market. A common mantra within the Paulson firm was that “they’re going to zero” refereeing that the mortgage back bonds would lose all their value, and the CDS contracts would be worth 100% of the original insured value. This is how Paulson’s hedge could theoretically make their money. If the housing based CDO where to lose value, and Paulson CDS positions could be sold for profit, the fund would do well. Definitely not as easy as it sounds, as the book showed that navigating a bubble is not for your weak of heart investor nor for your common retail investor.
CDS vs. Shorting Securities
The advantage for the CDS contract over short sells is the risk is limited to the monthly insurance payments to the insurance issuer, as opposed to short position in stocks where the risk is theoretically unlimited. A stock could infinitely rise in value, while the CDS insurance position is capped. With rates so cheap, Paulson wondered why everyone wasn’t buying protection.
As the housing market heated up, the pressure on Paulson and his hedge increased. One evident problem was that the relation to housing backed securities did not fall even though the number of defaults increased. This was because people defaulting on the original covenant where able to refinance their mortgages. As long as home prices increased, banks were willing to refinance. However, when home prices declined, the music stopped. Few on Wall Street envisaged the magnitude of this event, hence the ability of Paulson to buy 1 Billion worth of CDO insurance for only 10 million. Needless to say, when the time came for the CDS holders to start paying the investors of the loan protection, the gains where astonishing.
After reading the book, I maintain that the provenance of the “Great Recession” was a result of easy lending practices coupled with greed, by both the ‘Average Joe’ and Wall Street. The populist argument blaming Wall Street and capitalism for the bust still does not ring true with the evidence provided by the book. True, Warren Buffett called CDOs CDS and other derivatives “Financial weapons of mass-destruction”, the idea of the American Dream, of making home ownership available to everyone laid the foundation for the bubble. With the risk foreign bodies investing in the housing backed derivatives, the risk spread globally. The housing boom and bust illustrated there the truism “there is no free lunch”.
Another item in the headlines related to the book was the part the I Bank played in issuing CDS/CDOs. Goldman Sachs CEO Lloyed Blankenstien testimony before congress regarding the banks relationship between the two sides of the CDS. I cannot remove the accountability on the purchasers of the contracts, two parties mutually willing to engage in the financial transaction. No one forced government pensions, banks, etc. to purchase debt backed by mortgages, or in the case of CDS, derived from housing debt. What probably needs more investigation is the independent objectivity of the broker involved in the trade. However, this is outside the scope of this book.
Paulson was traditionally a M&A guy, making money on mergers and acquisitions during the 1990’s. His method shorted the acquiring firm and longed the firm being acquired. (the stock of the acquiring firm traditionally rises on news of a buyout and the purchasing company stocks dips in value.)
Hedge funds where first introduce d 1940’s, a fund managed by a private firm for private investment. The rules for hedge funds where different from mutual funds, with clients money being locked up for a certain period, and typical split of 80/20 gains. Hedge funds receive capital from wealthy individuals, institutional endowments, pensions, and governments. The number of hedge funds raised precipitously during the late 90s’ and 2000’s, no doubt due to the bull markets. SEC requirements for hedge funds are murky, with less stringent guidelines.
It all started with home loans. Borrowers that banks used to deny mortgages were eagerly sold ‘sub-prime’ mortgages with teaser rates, or interest only loans. Credit was easy to get a hold of. Annual incomes where not verified. No down payments where required. In addition to getting easy home loans, banks were also offering home equity loans, further indebting borrowers. By 2005 25% of all mortgages where ‘non-prime’. Everyone in the country was excited about home ownership. 69% of Americans owned a home…(That figure is a misnomer. I’d call home ownership when you own it outright, not just making monthly payments). Greenspan opaque rhetoric at the FED indicated all was well.
Wall Street is involved when the home loans where ‘securitized’. Mortgage companies would package the loans and sell them to investment banks. The investment banks would then re- package all the home loans and sell the resultant tranche slices to investors. The complex vehicles were created called Collatorized-Debt Obligations (CDOs). The raw revenues of these mortgage payments, with the most lucrative interests originating with sub-prime borrowers provided revenue. The investors of these CDOs and other mortgage derived loans where Swiss banks, pension plans, Australia, US insurance companies, and some iBanks kept them themselves (Leaman, Bear Sterns, etc.). These tranches and where mixed in with other loans (auto mobiles, air plans, etc.) and received high ratings from Moody’s. (AAA).
The market demand for this securitization product could not be met. Investors loved the high interest rates and couldn’t get enough of them. Enter the ‘Synthetic” investment, the Credit-Default Swap. Gregg Lippman, also a subject of the book albeit a minor one compared to Paulson, with a group of other Ibanks struggling to provide for the demand of Securitized home -loan based products, wanted to further capitalize on the housing market. CDS is essentially insurance on the payments of the CDO type investment vehicles. The value of the contract is inversely related to the value of the mortgage back security and tradable. As the value of the CDO went down, the insurance (CDS) gained in value. The CDS is called a ‘Negative carry” type investment, as opposed to the traditional “Positive Carry” preferred by most investors. The buyer of the CDS paid monthly installments to the issuer of the insurance. Not sure what exactly the ratio, but 1 Billion worth of insurance could be purchased for say 20 Million dollars. (2%). If the CDO would lose value, the price of the CDS contract would go up. The CDS contracts could be traded. This allowed for the bearish positions. The CDS issuers where glad to receive the monthly payments on this insurance, enjoying the steady stream of revenue paid by Paulson hedge and other CDS holders. Payday would come though.
The market for CDS is not as liquid as the stock market, but there was a market for them, and as you would expect, especially during the unraveling of the housing market. A common mantra within the Paulson firm was that “they’re going to zero” refereeing that the mortgage back bonds would lose all their value, and the CDS contracts would be worth 100% of the original insured value. This is how Paulson’s hedge could theoretically make their money. If the housing based CDO where to lose value, and Paulson CDS positions could be sold for profit, the fund would do well. Definitely not as easy as it sounds, as the book showed that navigating a bubble is not for your weak of heart investor nor for your common retail investor.
CDS vs. Shorting Securities
The advantage for the CDS contract over short sells is the risk is limited to the monthly insurance payments to the insurance issuer, as opposed to short position in stocks where the risk is theoretically unlimited. A stock could infinitely rise in value, while the CDS insurance position is capped. With rates so cheap, Paulson wondered why everyone wasn’t buying protection.
As the housing market heated up, the pressure on Paulson and his hedge increased. One evident problem was that the relation to housing backed securities did not fall even though the number of defaults increased. This was because people defaulting on the original covenant where able to refinance their mortgages. As long as home prices increased, banks were willing to refinance. However, when home prices declined, the music stopped. Few on Wall Street envisaged the magnitude of this event, hence the ability of Paulson to buy 1 Billion worth of CDO insurance for only 10 million. Needless to say, when the time came for the CDS holders to start paying the investors of the loan protection, the gains where astonishing.
After reading the book, I maintain that the provenance of the “Great Recession” was a result of easy lending practices coupled with greed, by both the ‘Average Joe’ and Wall Street. The populist argument blaming Wall Street and capitalism for the bust still does not ring true with the evidence provided by the book. True, Warren Buffett called CDOs CDS and other derivatives “Financial weapons of mass-destruction”, the idea of the American Dream, of making home ownership available to everyone laid the foundation for the bubble. With the risk foreign bodies investing in the housing backed derivatives, the risk spread globally. The housing boom and bust illustrated there the truism “there is no free lunch”.
Another item in the headlines related to the book was the part the I Bank played in issuing CDS/CDOs. Goldman Sachs CEO Lloyed Blankenstien testimony before congress regarding the banks relationship between the two sides of the CDS. I cannot remove the accountability on the purchasers of the contracts, two parties mutually willing to engage in the financial transaction. No one forced government pensions, banks, etc. to purchase debt backed by mortgages, or in the case of CDS, derived from housing debt. What probably needs more investigation is the independent objectivity of the broker involved in the trade. However, this is outside the scope of this book.
April 8, 2022
Merita citită, dar finalul este sec, fara prea multe detali. Se sfârșește foarte brusc..
March 22, 2023
Interesting overall but so much detail it killed me!
July 25, 2010
The Greatest Trade Ever is an absorbing read; an adroit journalist, Zuckerman finds the drama in the figures and events as they apparently unfolded (a skill shared by documentarians and fiction writers, working at their best), avoids the trap of wealthy white guy porn and manages to explain credit default swaps in a concise way understandable to people who do NOT work in the securities trading industry (including and especially me). As Tina Brown's Daily Beast promised, it's pretty fascinating. What's missing, and this is my political perspective, stay with me, is acknowledgment of the apparent fact that credit default swaps do not provide any benefit to the defaulting debtor (or even, if I've got it right, to the creditor who holds the defaulted instrument, usually a 'bundle' of residential mortgage loan which are saleable as securities, or slice / 'tranche' thereof). Thus it is purely a gambling transaction, adds no value to the economy except it generates immediate periodic fees or premiums for the seller (e.g., Bear Stearns) and a potential payoff to the purchaser (e.g., hedge fund, Jon Paulson in the book), just as though the two parties were betting on the outcome of a cockfight or football match. No land is conveyed, no product is manufactured or sold, no company receives an investment of capital (other than payment of the periodic premiums and payoff mentioned above). Author Zuckerman is a Wall Street Journal writer or columnist by trade, so he's 'Drinking [marinading in:] the Kool-Aid' of the securities traders (WSJ is an editorially conservative paper, 1st, and an essential source of in-depth media coverage of the securities trading markets and fora, to boot). I am not opposed morally to gambling or to speculative trading of securities instruments, I just think it should be mentioned, including in 'The Greatest Trade Ever.'
As an English Lit grad I can't but mention that the book could have used an editor -- some clunky and ambiguous passages required a re-reading (or two); I had to machete through some errors of grammar and syntax which I wouldn't have expected from a professional writer.
I cannot reject this book, nonetheless, as I mentioned at the top -- if you don't sweat the absurdity of the subprime loan meltdown meaning a few smart hedge fund traders buy new estates in the Hamptons or put generations of their progeny through the most expensive schools in the world, if you work as or with a securities trader[s:], or if you're among the fortunate few who cannot fathom the vagaries of living on annual income of less than $300,000.00, you'll be engaged by this book and its complementary trajectories of (1) financial crisis incoming and (2) desperate hedge fund managers and high-end traders hanging on to and adding to sizable trading positions /CDS obligations which many could understand but a lot fewer bought into.
As an English Lit grad I can't but mention that the book could have used an editor -- some clunky and ambiguous passages required a re-reading (or two); I had to machete through some errors of grammar and syntax which I wouldn't have expected from a professional writer.
I cannot reject this book, nonetheless, as I mentioned at the top -- if you don't sweat the absurdity of the subprime loan meltdown meaning a few smart hedge fund traders buy new estates in the Hamptons or put generations of their progeny through the most expensive schools in the world, if you work as or with a securities trader[s:], or if you're among the fortunate few who cannot fathom the vagaries of living on annual income of less than $300,000.00, you'll be engaged by this book and its complementary trajectories of (1) financial crisis incoming and (2) desperate hedge fund managers and high-end traders hanging on to and adding to sizable trading positions /CDS obligations which many could understand but a lot fewer bought into.
This entire review has been hidden because of spoilers.
November 21, 2011
http://avadhutrecommends.wordpress.com/
Summary –
The Greatest Trade Ever is a brilliant narrative of John Paulson’s sensational trade where his hedge fund bet against the market and made $20 Billion.
Review –
To be honest, I was bit apprehensive when I started with this book. This was 4th book in quick succession on the same topic for me and I feared it may not capture my interest. True, the story runs parallel to that of The Big Short, but The Greatest Trade Ever distinguishes itself with its dexterous and lucid style.
We spend the first half of the book knowing about John Paulson and his crafting of trade of the century. It’s an intriguing read about how Paulson, a rank outsider to mortgage industry became suspicious about it and went on his hunch to do research about housing sector. The most absorbing part is when his associate Pellegrini after months of painstaking research, pouring over data for days on end created the chart that cemented their intuition of a massive bubble in real estate.
I found the second half even more exciting as Paulson begins his wait for the dominos to topple after taking his massive bets. We also meet Dr. Mike Burry, who was first to identify the anomalies in housing and his growing frustration as his efforts to build the legendary trade are thwarted by his investors unable to understand his logic and unwilling to take the risk. Then there is Jeff Greene, Paulson’s friend and a real estate magnate, Graig Lippman, the Deutsche Bank trader who also built similar positions against housing.
When the actual meltdown began with blowing up of Bear Stearns, the book gathers real pace. Will Paulson and others be able to liquidate their positions? Will market turn so illiquid that they cannot sell their hedges? Will it turn positive once again? Will they squander off the gains? What next?
I just could not stop thinking about the fate of every player in this move. The idea that market can remain irrationally exuberant for more time than one can remain solvent actually kept my pulse running very fast as I longed to move on to next page.( I read this portion in a bus travelling from office to home, making my heartbeats run even faster!) In the end the vindication came, but the price paid by everybody including the world at large was very high.
A must read tale if you want to know about the relatively unknown investors who found that the emperor wore no clothes and profited from it.
Summary –
The Greatest Trade Ever is a brilliant narrative of John Paulson’s sensational trade where his hedge fund bet against the market and made $20 Billion.
Review –
To be honest, I was bit apprehensive when I started with this book. This was 4th book in quick succession on the same topic for me and I feared it may not capture my interest. True, the story runs parallel to that of The Big Short, but The Greatest Trade Ever distinguishes itself with its dexterous and lucid style.
We spend the first half of the book knowing about John Paulson and his crafting of trade of the century. It’s an intriguing read about how Paulson, a rank outsider to mortgage industry became suspicious about it and went on his hunch to do research about housing sector. The most absorbing part is when his associate Pellegrini after months of painstaking research, pouring over data for days on end created the chart that cemented their intuition of a massive bubble in real estate.
I found the second half even more exciting as Paulson begins his wait for the dominos to topple after taking his massive bets. We also meet Dr. Mike Burry, who was first to identify the anomalies in housing and his growing frustration as his efforts to build the legendary trade are thwarted by his investors unable to understand his logic and unwilling to take the risk. Then there is Jeff Greene, Paulson’s friend and a real estate magnate, Graig Lippman, the Deutsche Bank trader who also built similar positions against housing.
When the actual meltdown began with blowing up of Bear Stearns, the book gathers real pace. Will Paulson and others be able to liquidate their positions? Will market turn so illiquid that they cannot sell their hedges? Will it turn positive once again? Will they squander off the gains? What next?
I just could not stop thinking about the fate of every player in this move. The idea that market can remain irrationally exuberant for more time than one can remain solvent actually kept my pulse running very fast as I longed to move on to next page.( I read this portion in a bus travelling from office to home, making my heartbeats run even faster!) In the end the vindication came, but the price paid by everybody including the world at large was very high.
A must read tale if you want to know about the relatively unknown investors who found that the emperor wore no clothes and profited from it.
August 23, 2010
I went into this book not expecting much. In terms of subject matter, it is somewhat of a carbon copy of Michael Lewis' 'The Big Short', which I enjoyed immensely. There is some overlap of people like the doctor turned investor, Michael Burry, and the Deutsche Bank Bond Trader, Greg Lippmann. But after that, both books cover different people who had the foresight, knowledge and courage to short the real estate bubble. Which book is better? I have to say this one. It may have been that my expectations were low to begin with, thinking that nothing could top Michael Lewis' book. But I was pleasantly surprised. I believe this author, Gregory Zuckerman, does a better job of explaining the shenanigans of this past bubble. He also goes deeper into the lives of these people, so much so that you end up rooting for them to win. Most, if not all of them, were underdogs in the financial world, struggling to establish themselves but meeting failure at every turn. That is until they realized the opportunity of a lifetime to make an enormous amount of money in a short period of time.
I picked up on the book after hearing about the SEC investigation into Goldman Sachs and how the investment bank set up a major transaction for John Paulson (the main subject of the book) that netted him billions. I figured this book would provide all the exact details of that transaction. But it didn't. It did shed some light on it briefly. What the book made clear was that John Paulson's trades were done legally. However, helping Paulson to setup those trades did cross some ethical boundaries. Boundaries that Bear Stearns did not want to cross while Deutsche Bank and Goldman Sachs were happy to oblige.
Choosing between the two books, I would recommend this one over Michael Lewis. If you plan on reading both books, then read Michael Lewis' book first, then this, as reading in the reverse order would be a bit of a let down.
I picked up on the book after hearing about the SEC investigation into Goldman Sachs and how the investment bank set up a major transaction for John Paulson (the main subject of the book) that netted him billions. I figured this book would provide all the exact details of that transaction. But it didn't. It did shed some light on it briefly. What the book made clear was that John Paulson's trades were done legally. However, helping Paulson to setup those trades did cross some ethical boundaries. Boundaries that Bear Stearns did not want to cross while Deutsche Bank and Goldman Sachs were happy to oblige.
Choosing between the two books, I would recommend this one over Michael Lewis. If you plan on reading both books, then read Michael Lewis' book first, then this, as reading in the reverse order would be a bit of a let down.
September 10, 2010
Good, fun read. Zuckerman sketches out the trade without going too far into technical details, which is fine -- he throws enough light on the research process and the push back from investment banks for readers to understand how hard Paulson had to work to get this trade off the ground. It's got some nice biographical sketches of Paulson and various others who also took the same trade, though in less spectacular size. It also shows how important a fund's investor base is -- Paulson managed to make the trade because he had investors who stuck with him; Michael Burry, unfortunately, didn't. One can't help but feel sorry for Burry, who spotted the trade earlier than did Paulson, and simultaneously feel that Paulson did have a bit of luck on his side -- to have arrived at the mortgage market and woken up to the trade not too early and not too late.
It's interesting today to read that his funds aren't doing so well in 2010 to date, after fantastic runs in 2007-9. It sort of makes sense, though -- Paulson wasn't someone who had followed the mortgage market for years/decades, he started learning about it in 2005-6. He recognised clearly the bubble and took advantage of its bursting. But he may have misjudged the bubble's wider significance in context of long term financial history -- and thus misjudged whether the subsequent rebound played out in the last year will turn out sustainable and the first part of the next multi-year bull, or whether it is merely a bull correction in a secular bear market. This remains to be seen -- whether he goes down as a one-shot wonder or a legendary investor with sustainable track record depends on how his funds (which were up some 500% in 2007 -- rather black-swan like) perform over the next 3-5 years.
But absolute kudos to him nonetheless.
It's interesting today to read that his funds aren't doing so well in 2010 to date, after fantastic runs in 2007-9. It sort of makes sense, though -- Paulson wasn't someone who had followed the mortgage market for years/decades, he started learning about it in 2005-6. He recognised clearly the bubble and took advantage of its bursting. But he may have misjudged the bubble's wider significance in context of long term financial history -- and thus misjudged whether the subsequent rebound played out in the last year will turn out sustainable and the first part of the next multi-year bull, or whether it is merely a bull correction in a secular bear market. This remains to be seen -- whether he goes down as a one-shot wonder or a legendary investor with sustainable track record depends on how his funds (which were up some 500% in 2007 -- rather black-swan like) perform over the next 3-5 years.
But absolute kudos to him nonetheless.
June 5, 2011
One of the best non-fiction books I have read in some time, in terms of financial books I would say it rivals Liars Poker. Zuckerman took me on a wild ride through the most successful trade of all time. The ‘trade’ was actually a series of trades all based around shorting the housing market before and during the crash of 07-08. From the vantage point of John Paulson, his staff and several other key players across the country he showed how they all pulled it off. The surprising part is that Paulson was a small timer(in the hedge fund world) and never really dabbled in the mortgage backed security market. A trade idea came to him and figured out the BEST possible way to execute it and had the balls to go all in. It was a page turner; tough to pull myself away. I think it helped that I already had core knowledge of the financial products used to short the market, most readers will not. He does break it down and explain it in a fashion that even non-financially savy people would understand though. The book really opens your eyes to the opportunities that arise because of bubbles in the market and how the status quo and optimism of the market is not always right. The below quote really sums it all up.
“The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a widespread belief is more likely to be foolish than sensible” – Bertrand Russell
Highly recommend this book to anybody.
“The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd; indeed, in view of the silliness of the majority of mankind, a widespread belief is more likely to be foolish than sensible” – Bertrand Russell
Highly recommend this book to anybody.
January 10, 2014
I'm very glad I took the extra effort required to finish this book! I have a much, much better understanding of the subprime market, 2007/2008 market & mortgage collapse, etc. I'm surprised that I hadn't heard this perspective on all the news docs I followed. Please realize that I have little financial training, but I do know numbers. Two things had troubled me about the collapse:
--I saw it coming, why didn't others?
--Why hadn't anyone done anything about it?
Now, I see that many financial types did indeed see it coming. The new-to-me part is that seeing it coming, those financial types set out to find ways to make money from mortgage failures from within that very same system. In essence, many brokers were betting against their own colleagues & companies. Those bets coming due actually contributed to the bank problems. This is overly simplistic. Many did try to do something about the whole thing, but it became clear that even financial types just didn't know numbers. And, they hadn't listened to that tag line about past performance is no guarantee of future.... And, of course, there's the whole thing about why none of the legislation of the mid 2000s to regulate could pass through congress....
Bottom line: This is thorough but not overly technical about the whole thing. I recommend it highly.
--I saw it coming, why didn't others?
--Why hadn't anyone done anything about it?
Now, I see that many financial types did indeed see it coming. The new-to-me part is that seeing it coming, those financial types set out to find ways to make money from mortgage failures from within that very same system. In essence, many brokers were betting against their own colleagues & companies. Those bets coming due actually contributed to the bank problems. This is overly simplistic. Many did try to do something about the whole thing, but it became clear that even financial types just didn't know numbers. And, they hadn't listened to that tag line about past performance is no guarantee of future.... And, of course, there's the whole thing about why none of the legislation of the mid 2000s to regulate could pass through congress....
Bottom line: This is thorough but not overly technical about the whole thing. I recommend it highly.
February 13, 2010
Exceedingly well researched, well written account of the unbelievably few who foresaw the seemingly obvious sub-prime mortgage and real estate crash. The author does a very nice job of giving biographical detail of the various players and telling an engaging story.
John Paulson and a few other clairvoyants bucked the popular belief that real estate never decreases in value, and remembered the classic random walk theory (the events of the past have no relevance of the price of a stock tomorrow) in their analysis. The result, in Paulson's case, was $20B over two years for his hedge fund, and $6B for himself. Most others lost millions or billions, and some financial institutions lost every thing (Bear Sterns, Lehman Bros., etc.).
I particularly liked how the author traced the results of other less known investors who profited big time. Lahde, Greene, and Lipkin made millions using the same basic trade as Paulson - investing in esoteric investments known as credit default swaps (CDS) to short sub prime mortgages.
At times the author was somewhat repetitive, resulting in a book that could easily have 50 less pages (304 pages in total), but overall a quick and enjoyable read.
John Paulson and a few other clairvoyants bucked the popular belief that real estate never decreases in value, and remembered the classic random walk theory (the events of the past have no relevance of the price of a stock tomorrow) in their analysis. The result, in Paulson's case, was $20B over two years for his hedge fund, and $6B for himself. Most others lost millions or billions, and some financial institutions lost every thing (Bear Sterns, Lehman Bros., etc.).
I particularly liked how the author traced the results of other less known investors who profited big time. Lahde, Greene, and Lipkin made millions using the same basic trade as Paulson - investing in esoteric investments known as credit default swaps (CDS) to short sub prime mortgages.
At times the author was somewhat repetitive, resulting in a book that could easily have 50 less pages (304 pages in total), but overall a quick and enjoyable read.
November 3, 2013
This book was great. I am a major fan of financial literature told in a novel format and this book delivered. George Zuckerman was able to write in an engaging manner that kept my interest throughout the story and his creation of John Paulson as an almost "antihero" gave great context in what is still the most financially profitable trade for an individual in Wall Street history. My one critique is actually the one thing I also like about the book the most. It is written like a novel, and because of this fact the "characters" are sometimes arch-typed in a way that doesn't feel real. Is it relevant for me to know that one particular trader has women that stay with him (presumably escorts) wherever he travels. There are lots of anecdotal stories that keep your interest, but also make you wonder if the author was just filling in the blanks with sometimes potentially salacious information that is irrelevant to the story.
Overall I give this book a very respectable 4 out of 5 stars and recommend it to anyone who is business minded.
Overall I give this book a very respectable 4 out of 5 stars and recommend it to anyone who is business minded.
April 15, 2010
I stumbled onto this book as an alternative to Michael Lewis' "The Big Short," which is not available for the kindle. Paulson's trades read like a who's who of the American financial collapse. The book is entertaining (so long as you weren't on the other side of these trades) but can be a bit difficult to follow at times as the author hops from Paulson to other like-minded investors and back again. If you are looking for the story of what went wrong then I would suggest something else (like This American Life's episode series that began with "The Giant Pool of Money"). This book will make you wonder why so many missed the boat and lament not having a spare couple million to invest with Paulson in 2006.
December 31, 2013
This was a fantastic book!! In fact, I thought it was better than the title suggests, since the book managed to simultaneously describe trading on the potential collapse of the housing bubble by various parties, all done in slightly different ways. I also really appreciated the author's ability to explain complex financial products as succinctly and clearly as possible in very limited space.
The only thing I wish would have been different was the relative lack of footnotes. How did the author obtain most of the information in the book (such as conversation in meetings, etc). Was it through personal interviews? I was left to wonder and would have liked to know some of the sources.
Barring the above, I was completely taken in by the book and thought it was the best book describing trading on the housing bubble I have encountered.
The only thing I wish would have been different was the relative lack of footnotes. How did the author obtain most of the information in the book (such as conversation in meetings, etc). Was it through personal interviews? I was left to wonder and would have liked to know some of the sources.
Barring the above, I was completely taken in by the book and thought it was the best book describing trading on the housing bubble I have encountered.
March 17, 2010
I have read several Wall Street books: "Liar's Poker", "Barbarians at the Gate", "Rigged", "When Genious Failed" to name a few but The Greatest Trade Ever is my favorite so far. Just really well written and easy to follow and you dont have to know a lot about the world of high finance to understand how this guy John Paulson struck gold. It also paints an objective type view of Paulson and doesn't imply that he was a genious mastermind like other books in the genre and Zuckerman actually portraits several other traders who had the same idea with poorer timing.
If you like these types of stories keep an eye out for Gregory Zuckerman I wouldn't be surprised if we saw more from him writing these types of books.
If you like these types of stories keep an eye out for Gregory Zuckerman I wouldn't be surprised if we saw more from him writing these types of books.
March 3, 2013
One of the most well-investigated and fascinating reads ever for me. A must-read if the world of stock markets fascinates you. This is the detailed story of how an industry underdog John Paulson along with his small 12 man hedge-fund firm made the trade of the century in gaining $20bn from the 2007 market downturn. The book is written from countless interviews the writer (Gregory Zuckerman) conducted with close associates of John as well as other industry insiders and whose-whos. Interviews of people who both gained and lost hugely in the '07 collapse.
The insider story of Goldman Sachs is also included in the book and marks for an interesting read. The writing style is blunt and to-the-point and doesn't waste time with useless emotions.
A 5 stars for me.
The insider story of Goldman Sachs is also included in the book and marks for an interesting read. The writing style is blunt and to-the-point and doesn't waste time with useless emotions.
A 5 stars for me.
November 10, 2010
The Greatest Trade Ever was a very interesting account of the lead up the housing collapse. The warnings of the approaching catastrophe were not hidden but surprisingly few people on Wall Street protected themselves.
John Paulson recognized what was coming and found an investment that profited from the default of loans. My rudimentary understanding about the trade is that he bought insurance on blocks of loans that paid out if they defaulted. Who sold the insurance? The same banks that were giving out the toxic loans creating even more of a problem down the line.
John Paulson was not the only person to make money on toxic loans, he just made the most.
John Paulson recognized what was coming and found an investment that profited from the default of loans. My rudimentary understanding about the trade is that he bought insurance on blocks of loans that paid out if they defaulted. Who sold the insurance? The same banks that were giving out the toxic loans creating even more of a problem down the line.
John Paulson was not the only person to make money on toxic loans, he just made the most.
March 12, 2010
Very interesting story and helpful to understand what happened with mortgages and housing. The book nicely outlines the path of multiple people who bet against housing and effectively highlights the difficulty in executing the trade well, even if you have conviction about the answer. The Author can at times try to create more drama and excitement where there is none by playing up banker stereotypes or overhyping personalities - but that is a relatively minor flaw. Definitely an enjoyable read.
April 4, 2016
This is essentially the story of John Paulson as well as other hedge fund managers who bet against the housing market around 2006-07. The Big Short deals with some of the smaller players who did well. This is mainly about Paulson, who was the biggest single winner. It starts slow but is a quick read after the first few chapters. If anything I would have preferred a bit more detail on how they went about the analysis of various markets, and a bit less detail about the fabulous lives of the rich and famous they interacted with.
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