‛Most of the books of the subprime era were dedicated on the contagion, failures and humongous losses, for Investment banks, Financial institutions and Government agencies.
The Greatest trade ever – by Gregory Zuckerman is a long conversation and co-operation of the person John Paulson, ( whose Hedge fund was in lime light the famous Abacus deal were Goldman Sachs was in trouble).
The interesting fact about the book its a prolong conversation and a real-time zeal that comes naturally when a person in on top of the world, ( somewhat exactly the way Barbarians at the gate was written).
Traders, leading investment banks, proprietory Trading firms all were aware of the over stretched subprime market, but non of them were trying to take a call against the market. In the mean time Mr Paulson along with his cullic Mr. Pellegrini discovered the idea and met IB, they packaged mortgages called collateralized debt obligations, or CDOs—that Paulson & Co. could wager against.
At one point of time Paulson was betting against $1 billion or so of mortgage debt in one fell swoop. Paulson was not an expert in terms of real estate, rather his forte was to investing in corporate mergers that he viewed as the most likely to be completed, among the safest forms of investing.
It was very difficult to convince the investors betting against mortgages, in process he had to withdraw few of his funds, But he continued his learning on the CDO and CDS and Pellegrini acted as mortgage analyst for his fund house.
In the year 2007 Paulson and company made a whooping $15 billion, his personal cut was somewhere around $billion or roughly $10 million a day. The amount was so high that it was the sum income of earnings of J. K. Rowling, Oprah Winfrey and Tiger Woods put together.
The investment bankers were the biggest losers in tha game, who worked along with the Paulson for creation of the deals be it Bear stern, Goldman Sachs and the biggest looser of them was the German Deutsche bank, as it failed to sell all of the CDO deals it constructed and was stuck with chunks of toxic mortgages suffered $500 million losses.
Paulson betted against the toxic mortgages as he was pretty sure about the outburst of the housing bubble as he himself went to Florida for the ground reality checks.