The Greatest Trade Ever: The Behind-The-Scenes Story of How John Paulson Defied Wall Street and Made Financial History by Gregory Zuckerman

Author:Gregory Zuckerman
Language: eng
Format: mobi, epub
Tags: Investments & Securities, Finance, Business, Investment Analysis, Economics, Hedge funds - United States, Investments & Securities - General, General, United States, Hedge funds, Hedging (Finance), Paulson, Biography & Autobiography, John Alfred, Business & Economics, Economic History
ISBN: 9780385529914
Publisher: Random House, Inc.
Published: 2009-11-02T08:00:00+00:00

Pellegrini listened closely to the conversation, displaying little emotion. He became convinced that some of the executives didn’'t fully believe their own arguments. They simply were aiming to stop Paulson from shorting so much and causing trouble for Bear Stearns, Pellegrini concluded. He quietly seethed.

Two could play this game, Pellegrini eventually decided. He started to act as if he was having second thoughts about his bearish stance, and as if he was being swayed by the arguments of the guests.

As the meeting wrapped up, Pellegrini turned to the Bear Stearns executives with a smile. “"We really appreciate the help; thanks, guys.”" He didn’'t dare reveal what really was on his mind.

“"We said, ‘'Oh, thank you for your help,’' but really we were saying ‘'Fuck you,’'”" Pellegrini recalls. “"We were both pretending.”"

Paulson remained poker-faced during most of the firm’'s meetings with the Wall Street pros. He digested their points and made doubly sure he hadn’'t missed anything, but he didn’'t hint at how bearish he truly was. If he wanted to keep buying at inexpensive prices, Paulson couldn’'t reveal his true appetite for the insurance.

“"They concluded that I was an inexperienced manager,”" he recalls. “"I had to play dumb. But I got tired of people saying I was stupid or wrong.”"

Although the new fund wasn’'t large, there weren’'t many others doing much buying of mortgage protection, so Paulson’'s activity quickly became the buzz of the market. Over the next few months, he received checks from new clients who sensed that housing might be peaking. He put the money to work, placing even more trades. Paulson’'s team soon became more fearful about rivals catching on. When some of his investors shared details of the fund’'s tactics, Paulson turned furious, installing technology to prevent clients from forwarding his e-mails.

Paulson called Hank Greenberg, the founder of insurance giant American International Group, to see if his investment firm, C.V. Starr, wanted to invest in the Paulson fund. AIG had spent the last few years selling tens of billions of dollars of CDS contracts on subprime mortgages, and Paulson knew AIG could be at risk if housing crumbled. An investment in Paulson’'s fund might be a good way to offset that position, he argued.

Greenberg and his team didn’'t know Paulson, though, so they asked an outside specialist, Anauth Crishnamurthy, to vet the idea. Visiting the firm after the close of trading one day, Crishnamurthy grilled Pellegrini and Jim Wong, Paulson’'s head of investor relations, pushing for details of their moves. When Paulson dropped by the meeting, Crishnamurthy asked why C.V. Starr should pay the hedge fund to invest in the ABX index when it could do that on its own.

“"What’'s your trading advantage?”"

“"That doesn’'t matter,”" Paulson responded. “"The bonds are going to zero.”"

Listening to Crishnamurthy’'s detailed questions, the Paulson team worried that he might steal the trade and teach his bosses to do it themselves.

After the meeting broke up, Pellegrini pulled aside Wong, saying, “"Don’'t waste your time with him.”"

Paulson pored over mortgage-servicing reports and noticed rising delinquencies among borrowers.

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