Disaster Capitalism: Alive and Well
McClatchy Newspapers - New York hedge fund manager John Paulson was one of the first to predict the collapse of the subprime mortgage market - and to cash in on his knowledge.
By late 2005, he already had concluded that the subprime loans underlying high-yield bonds being sold worldwide would become worthless, even as some Wall Street firms were still ramping up their sale of related securities.
"We determined ...that there was a complete mispricing of risk of mortgage securities," Paulson testified at a congressional hearing in November 2008.
As a result, his firm, Paulson & Co., made a $3.7 billion profit by betting against the housing market as it nose dived in 2006 and 2007. On Friday, the Securities and Exchange Commission disclosed that $1 billion of those profits came in an insider deal in which Goldman Sachs allegedly let the company select subprime securities for a complicated offshore deal and then bet on their failure. Read more.