BAC Message Board

 

Perry Rod
09/17/14.8:01.PM

Analysis Today, the United States Federal Rese...

2

 

Mark Mitchell
01/20/10.10:31.PM

Market Makers By now, everybody knows that the mark...

1794

 

Randy Hamdan
06/10/09.5:35.AM

News WASHINGTON (MarketWatch) -- The oppor...

179

 

Randy Hamdan
06/08/09.5:57.AM

BAC is a go...................

131

 

Randy Hamdan
06/04/09.3:18.PM

BAC  beautiful! chart is ready! ...

133

 

Perry Rod
05/29/09.1:27.PM

Analysis I saw the news on it yesterday. ...

77

 

Patrick Brennan
05/29/09.10:08.AM

Analysis big day yesterday for series e bac pr...

59

 

Perry Rod
05/25/09.2:43.PM

Analysis sorry fot the super late response on ...

54

 

Patrick Brennan
05/13/09.7:16.PM

Analysis Interesting Analysis...Any theories o...

64

 

Perry Rod
03/04/09.10:00.PM

Analysis In my first installment of this issu...

679

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Market Rap

Bank of America Corporation Featured Analysis

 

John Paulson's "Greatest Trade Ever" - Something of a Scam

by Mark Mitchell, Published: January 20th, 2010 10:34 PM CST

By now, everybody knows that the market for collateralized debt obligations was riddled with fraud in the lead-up to the financial crisis. What is less known is the fact that hedge fund managers helped create and inflate the market for these toxic securities specifically so that they could bet against them and profit from the inevitable collapse.

An example of a particularly sordid scheme, orchestrated by hedge fund billionaire John Paulson, was discovered some time ago by David Fiderer, a blogger for the Huffington Post. The information in Fiderer’s blog is rather incriminating, and, of course, the mainstream media is not on the case, so I think it bears repeating.

In a close reading of Wall Street Journal Gregory Zuckerman’s book, “The Greatest Trade Ever”, an otherwise starry-eyed account of Paulson’s bets against the mortgage market, Fiderer discovered this nugget:

“Paulson and [partner Paolo Pellegrini] were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank, Goldman Sachs, and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.”

As Fiderer explains, Paulson asked the banks to create those CDOs “so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs subordinate claims on the mortgage collateral were…

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