Article in Barrons:
well nobody actually knew john paulsen before he shorted the subprime mortgage market and ended up making about 20 b profits in that trade , even though he was in this field for over 30 years, he was unknown to the public.
One day he had this brilliant idea ,a genius idea where he decided to short the subprime mortgage because he taught that real estate was getting highly speculative and here what he did was unique ,he went to goldman sach , and said to them 'can you create an instrument that is filled up with the worst sub prime debt that you can possibly find , literally an instrument designed to blow up ,an exploding box of cigars' and goldman said ofcource we can create it for you john.
And then goldman went ahead and created a security that had within it all these terrible subprime loans that were bound to go bad even in an good economy, and then what goldman did was ,since you need a counter party to the trade , went to some of its clients who happened to be some very unsophisticated foreign banks and then said to these institutions 'This is a great instrument ,this is very diversified , a low risk security and will give you a high rate of interest ' and then some of these banks and institutions bought it , where as goldman knew well in advance these instruments were designed to blow up and it did blow up .
Goldman was accused of fraud and they did admitted that they did commit a fraud in the marketing of these instruments, and was penalized .
But what this goldman created instrument did was , it allowed paulsen to make this huge bet , but it was a totally rigged bet, it was designed to blow up no matter what
So this turned out to be the greatest trade and even if you knew how this trade came about , then you would know it wasn't great at all, it was something which was totally skewed in favor of john paulsen . The foreign banks who invested in it lost tons of money.
well nobody actually knew john paulsen before he shorted the subprime mortgage market and ended up making about 20 b profits in that trade , even though he was in this field for over 30 years, he was unknown to the public.
One day he had this brilliant idea ,a genius idea where he decided to short the subprime mortgage because he taught that real estate was getting highly speculative and here what he did was unique ,he went to goldman sach , and said to them 'can you create an instrument that is filled up with the worst sub prime debt that you can possibly find , literally an instrument designed to blow up ,an exploding box of cigars' and goldman said ofcource we can create it for you john.
And then goldman went ahead and created a security that had within it all these terrible subprime loans that were bound to go bad even in an good economy, and then what goldman did was ,since you need a counter party to the trade , went to some of its clients who happened to be some very unsophisticated foreign banks and then said to these institutions 'This is a great instrument ,this is very diversified , a low risk security and will give you a high rate of interest ' and then some of these banks and institutions bought it , where as goldman knew well in advance these instruments were designed to blow up and it did blow up .
Goldman was accused of fraud and they did admitted that they did commit a fraud in the marketing of these instruments, and was penalized .
But what this goldman created instrument did was , it allowed paulsen to make this huge bet , but it was a totally rigged bet, it was designed to blow up no matter what
So this turned out to be the greatest trade and even if you knew how this trade came about , then you would know it wasn't great at all, it was something which was totally skewed in favor of john paulsen . The foreign banks who invested in it lost tons of money.