1 Man, 1 Year: $3.7 Billion Payout (Hedge Fund Manager Won Big by Betting Mortgages Would Fail)

[Omaha Steve]

Source: Washington Post

By David Cho

The subprime mortgage mess that caused massive losses for homeowners and banks was a little kinder to hedge fund manager John Paulson. Betting subprime mortgage securities would sour, Paulson personally earned $3.7 billion last year.

Yes, you read that correctly. That's billion with a "b."

He wasn't the only one with Titanic-size profits. Two other fund managers, George Soros and James Simons, who are notoriously secretive about their investments, earned $2.9 billion and $2.8 billion, respectively, according to Alpha Magazine's annual list of top hedge fund earners.

The numbers left jaws agape across Wall Street and Washington. With his windfall from last year alone, Paulson could have bought troubled Wall Street giant Bear Stearns three times over. Or he could have matched the price Delta agreed this week to pay to merge with Northwest Airlines and still have $600 million left over.


Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/04/16/AR2008041602027.html

[ColbertWatcher]

1. EARNED?

How did this man earn any money off this?

Washington Post, how far you have fallen.

[Thepricebreaker]

23. Its called putting up your money... so yes he earned it. Sorry he doesnt work at McDonalds.

[Binka]

2. A Bit Of Me Just Died Reading That

On so may levels, and in so many ways that is just FUCKING OBSCENE!

[BootinUp]

3. Those are some smart (and rich) mofos. nt

[muriel_volestrangler]

4. And just to rub it in: 15% tax

Last year, several lawmakers introduced bills aimed at raising the tax rate, usually 15 percent, that fund managers pay on their gains. None of these efforts became law.

So he bets with other people's money, gets 20% of any winnings, and then pays just 15% tax on it. It's things like this that turn you into a Marxist after all.

[smiley_glad_hands]

6. Beat me to it. lol eom

[Joe Chi Minh]

It's just the Marxism of a financial elite and its enablers.

Old Lord Acton knew a thing or two:

"Tories he considered to be the epitome of political immorality and the antithesis of liberty because their main concerns were their preservation of office and the distribution of patronage."

Don't laugh, but this was taken from an article on Lord Acton and his beliefs "forbidden" by Yahoo, and "Visited at your own risk"!!!!!

I suppose yahoos can come in all shapes or forms; but you don't normally associate them with far-right wing nerds, of course, are far more very much more evil and sinister than common or garden louts.

[smiley_glad_hands]

5. Bet he only pays 15% in taxes too.

Same rate as me. I'm not a billionaire either.

[leftchick]

7. SCUM!

:puke:

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=440496&in_page_id=3&position=moretopstories

Financier makes £2bn from subprime
David Gardner, Daily Mail
17 April 2008, 9:28am


A hedge fund manager earned almost £2bn last year by betting on the subprime mortgage collapse.

John Paulson, a Harvard-educated New Yorker, predicted the housing slump which has heaped misery on millions of US home-owners and sent financial shockwaves across the globe.

With his £1.85bn earnings bonanza, the 52-year-old topped a list of the world's highest-paid hedge fund managers which was published yesterday by Institutional Investor's Alpha magazine.

Mr Paulson comes from humble roots in the Queens suburb of New York and is married with two daughters.

It is the first time that the extent of his earnings - which by September last year had already catapulted him on to Forbes's list of the richest Americans at number 165 - has been revealed.

[BigDaddy44]

18. Why is he scum?

He made a huge bet, for which he could have also lost tons of money, and it paid off. Please elaborate on how this makes him "scum"?

[Thepricebreaker]

21. anyone who makes more then 8 bucks an hour are called scum by some around here... amazing..

[CubicleGuy]

8. You know what this means...

The numbers left jaws agape across Wall Street and Washington.

It means they're going to have to find a way to outlaw this.

Now, on the other hand, if it had been a member of Congress who had done this, that would be OK.

[aggiesal]

9. Capitalism at it's finest ...

Paulson, Soros and Simons all gambled that the subprime mortgage industry
would crash. They bet their own money and won. They deserve the rewards.

The people that bet the subprime mortgage industry would payoff, lost big
(i.e. banks, investment houses like Bear Stearns, ...)

Soros is one person I respect. He'll use this money no doubt to promote
democracy around the world, which is one of his philanthropic endeavors.

He also knows that he is under-taxed.

I wish I would have known that there was such a hedge fund, because I would
have invested in it as well.

[Joe Chi Minh]

11. I believe a significant proportion of those ill-gotten gains (of the bank

CEOs and directors, not the likes of Soros) should be sequestrated by the Government and returned to the Exchequer for the benefit fo the public, from who it was, in effect, knowingly stolen. They knew it was a ponzi scheme that could only get crazier and crazier until the bubble burst.

[MilesColtrane]

17. By federal law you can't invest in a hedge fund unless you are already a millionaire.

(or you are well on your way to becoming one)

Only accredited investors are allowed by the Securities Act of 1933


"The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:

a bank, insurance company, registered investment company, business development company, or small business investment company;

an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

a charitable organization, corporation, or partnership with assets exceeding $5 million;

a director, executive officer, or general partner of the company selling the securities;

a business in which all the equity owners are accredited investors;

a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;

a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes."

---------------------------------------------------------------------


Changes have been proposed to up the ante at this little game to a net worth of $2.5 million.

Mustn't let the rabble into the club, you know.

[pepperbear]

10. uh did anyone else notice one of the names....

He wasn't the only one with Titanic-size profits. Two other fund managers, George Soros and James Simons, who are notoriously secretive about their investments, earned $2.9 billion and $2.8 billion, respectively, according to Alpha Magazine's annual list of top hedge fund earners.

edited to add this quotre fromthe article...

"It's clear somebody has to win and somebody has to lose," he said. "It's not pretty at all because people say, 'Oh my God. Look how much money these guys are making while people are losing their homes and are complaining about the cost of eggs and sugar.' But so what? We don't live in a society that is pretty all the time. That's why it's capitalism."

[Lucky Luciano]

12. Actually Jim Simons is a pretty amazing guy. I admire him greatly.

http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=ayjImYcoCiH8

He is a former geometry professor at MIT and SUNY Stony Brook. He was a famous math professor at that. Chern-Simons theory is a big deal.

He makes bets that are completely algorthmic and statistical and has found an edge. He is NOT a Wall St guy AT ALL and in fact he does not like to hire Wall St types. He only hires math and computer geeks. The computer geeks are crucial to his operation for writing programs to execute the statistically generated trade ideas in an instant. I have a very big math background...and I admittedly am a trader so I can relate to the hedge fund concept...but my favorite choice to work at would be Renaissance Technologies with Jim Simons..fat chance though since my math background was not super statistical (it was a branch of math called algebraic geometry, so maybe Simons can relate to me! There is hope yet!) and my computer science background is limited to writing a few C++ programs for pricing equity derivatives with the quantitative analysts at a large IB (that tore up billions on losing subprime bets) before I moved on to trading.

[OKthatsIT]

13. Imagine if you worked for the NSA these days

you could do PUTT OPTIONS and INSIDER TRADING and all sorts of 'tips' coming through the pipeline.

[Tansy_Gold]

14. The question not asked, however, is

who is forking over the billion$?

"He amassed his winnings by "shorting" securities linked to subprime mortgages. In a short sale, the investor borrows securities -- in this case, subprime mortgages that were widely held by banks, brokerages and other investors -- and sells them to another buyer. Later, the investor must buy those securities back and return them to the original lender. As the subprime market collapsed, the value of the securities fell, and Paulson was able to pocket the difference. The lenders were stuck with the losses."


This money has to come from somewhere. These hedge fund managers are not "making" money: they provide no tangible goods or services. They are gamblers. They do not manufacture cars or pharmaceuticals, they do not grow corn or pumpkins, they do not spin or weave or build or mine or paint or cook.

The same "bets" that put all these "winnings" in this asshole's hands were "losses" to the other party that he bet with. Who was that party? Was it Bear Stearns? Merrill Lynch?

Tansy Gold, inquiring

[donkeyotay]

19. There you go again, asking questions.

This was a transfer of wealth. Mr. Paulson's "earnings" came from somewhere. :shrug: Now St. Greenspan of Structured Finance said that derivatives were for insurance purposes and spread risk. He said spreading risk was good. Now he's gone to work for Paulson and Company. Those who created the system profited from it, and everyone says, "ain't capitalism great?"

[truedelphi]

15. Hey at least they made some money. The reason our economy is in

Free fall is not from people making money - but from our Treasury bailing out the failing financial entities - instead of letting them simply fail.

Each dollar spent on bailouts further weakens the dollar. Which would perhaps be okay IF we didn't need to buy oil from the Middle East, using Euros as payment. Each time the dollar deflates, the cost of oil goes up.

[girl gone mad]

16. I was just thinking..

3.7 Billion... in a few years maybe he'll be able to buy a Ferrari with it, or maybe just a week's worth of groceries. Who knows? Hope he's diversified into actual assets, and I don't mean sprawling mansions or gold coins.

[truedelphi]

20. The rich immediately convert to Euros or to Swiss Francs or Yikes!

Even the Chinese currency!!

So he'll be fine. <sigh> Whereas the rest of us are screwn.

But I hear you about the notion that a week's worth of groceries circa 2010 might be 400 Million dollars or something.

If there even are groceries.

[Thepricebreaker]

22. There is nothing wrong with what he did AT ALL. He gambled and it paid off. he could have lost.

[khaos]

24. it's called legalized theft.. there was no risk; he knew what the outcome would be

[joeglow3]

26. How?

This does not make sense. How did he know this would happen, but no one else did?

[Lucky Luciano]

27. He felt good about his bet...

but remember, the people on the other side of those bets probably felt good about their bets as well and must have felt very certain about their expected outcomes - which were quite the opposite.

My boss got screwed due to the subprime mess. He made very large short positions in a lot of the subprime lenders (he was not involved in the CDOs or MBS securities directly) when times were good. I mean very large short positions. The stocks kept going higher and he kept shorting more. He eventually could not take the pain any more and there was consolidation risk in the industry, so he cut it all for a $40MM loss (for the bank). Then a couple weeks after he cut the positions, New Century blew up...then Accredited had their blow up...and so did a few others. He left $150MM on the table....he was very cool about it and never bitched....but man does that suck. He was so right - he predicted all of this....but could not whether the storm when times were good.

[Indydem]

25. Well, at least he's giving to Dems...

http://www.alphamagazine.com/Article.aspx?ArticleID=1914753

PAULSON, JOHN A
NEW YORK,NY 10028
PAULSON & CO, INC./PRESIDENT
12/7/2007
$25,000
Democratic Senatorial Campaign Cmte

http://www.opensecrets.org/indivs/search_hp.asp?txtName=Paulson%2C+John&NumOfThou=0&txt2008=Y&submit=Go%21