The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
by Gregory Zuckerman
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Book Summary Information
Author: Gregory ZuckermanEdition: Hardcover
Audio: English (Unknown); English (Original Language); English (Published)
Published: 2009-11-03
ISBN: 0385529910
Number of pages: 304
Publisher: Crown Business
Book Reviews of The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
Book Review: A great Wall Street saga...
Summary: 5 Stars
Apparently Michael Moore had trouble finding someone able to explain the nature of the now-infamous credit default swaps to him, if you believe Moore's latest film about the Wall Street apocalypse. All I can say is that it's too bad he didn't have Greg Zuckerman's phone number. Five minutes, and I guarantee that Zuckerman could explain the raison d'etre and basic functions of these credit derivatives.
But that's because Zuckerman is a smart financial journalist, one who would rather explore what is really going on behind the scenes on Wall Street -- getting to know the people and understand the products and strategies that led to the recent debacle -- and generate 'scoops' that way rather than chase the story only after it has blown up. He's the kind of financial journalist that even Jon Stewart, with all his scorn for CNBC, could or should admire. And in this narrative, Zuckerman takes us beyond the world inhabited by the likes of Lehman Brothers' Dick Fuld, Jimmy Cayne of Bear Stearns and Lloyd Blankfein of Goldman Sachs, to the hidden corners of Wall Street, where a handful of folks who were decidedly NOT household names until 2007 were coming to question the business that was responsible for an ever-greater proportion of profits at nearly every investment bank and financial institution. How, they wondered, could so many people be so bullish about the housing market when it seemed so clear (as mortgage originators rushed to finance outsize home loans to people with no jobs, no credit history and no downpayment) that disaster was just around the corner?
Perhaps because they were outsiders -- as Zuckerman deftly shows us -- they were in a unique position to criticize and, more importantly, to act on their conviction that something was seriously amiss. John Paulson, who by 2008 would be a multi-billionaire and arguably the most important hedge fund manager since George Soros won billions betting against the Bank of England decades earlier, was a hedge fund outsider who had, until very recently, scrambled to be taken seriously by his own investors. With the help of Paolo Pellegrini, a failed investment banker, he put together the 'greatest trade' of the title -- a bearish bet on the housing industry and the financial services companies supporting it. Some put 'the greatest trade' in place too early and lost out because they couldn't afford to stay in the game long enough for it to pay off -- revealing another truth of the way financial markets and bubbles function. Others, like Paulson and Greg Lippman -- a Deutsche Bank trader who never really fit in on the trading desk and never could even fake an interest in sports -- would stake their personal and professional futures on believing that they were right and that the bubble was about to burst, even as the rest of Wall Street derided them.
This is the book to turn to for real insight on how Wall Street works, particularly when it comes to grasping the important and convoluted links between hedge funds and the banks and investment banks that developed as the former group rose to prominence over the last decade and John Paulson battled to take his place within that group. Zuckerman explores the tensions within the hedge fund industry as well as those that emerged between some of those hedge fund managers and the investment banks that at once relied on them for fees and became increasingly concerned that the same hedge fund managers were betting against the investment banking stocks en masse. He does a marvelous job of not only describing the complex products (like CDS) that were at the root of the market problems, but of setting out clearly and concisely the equally complex strategies pursued by the small and somewhat disparate band of outsiders that collectively made up "the greatest trade ever". What ultimately makes this book more enlightening than many of the straightforward chronicles of the market debacle that have been published so far is that rather than rehashing what happened by telling the story through the eyes of the folks who got it wrong (99% of Wall Street), Zuckerman introduces us to the handful of people who got it right -- who realized that the emperor was naked, and who had the courage to act on that conviction in the face of widespread scorn. What is particularly chilling is how few of these individuals there were, and how common Wall Street's 'group think' had become by the time the first cracks in the system appeared in the first half of 2007.
This is an exceptionally solid piece of reporting from a journalist who has won the financial media's version of a Pulitzer, a Loeb award, twice for his work on these issues. He's not a household name, like Michael Lewis or even Andrew Ross Sorkin of the New York Times, and doesn't have the bully pulpit of a television show to promote this book. Which is unfortunate, because of the books I've read so far about the events of the last two years (which is pretty much everything), this one has the most insight into what Wall Street has become over the years. Best of all, by the end of it, even the financial neophyte will have a solid knowledge of everything from short-selling to those pesky credit default swaps -- and understand why they are important.
Highly recommended for anyone looking for more than just a "what happened/who did what, when" book about the financial crisis; the only thing missing, in my opinion, was some kind of input on what it implies about where we are headed now that only a tiny handful of market outsiders had the insight and the chutzpah to bet against the bubble. If you've tried to read something like A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation but drowned in the terminology, this is the book to try next. Another book that looks behind the "what" to understand and discuss the "why" is Gillian Tett's Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe, who shows how some of the products involved in the debacle had their origins in creative and useful financial innovations.
Full disclosure: Zuckerman is a former colleague, although we haven't worked together in a number of years. I obtained a copy of the book independently, however; he didn't request that I either read or review it.
More The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History reviews:
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Summary of The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
In 2006, hedge fund manager John Paulson realized something few others suspected--that the housing market and the value of subprime mortgages were grossly inflated and headed for a major fall. Paulson's background was in mergers and acquisitions, however, and he knew little about real estate or how to wager against housing. He had spent a career as an also-ran on Wall Street. But Paulson was convinced this was his chance to make his mark. He just wasn't sure how to do it. Colleagues at investment banks scoffed at him and investors dismissed him. Even pros skeptical about housing shied away from the complicated derivative investments that Paulson was just learning about. But Paulson and a handful of renegade investors such as Jeffrey Greene and Michael Burry began to bet heavily against risky mortgages and precarious financial companies. Timing is everything, though. Initially, Paulson and the others lost tens of millions of dollars as real estate and stocks continued to soar. Rather than back down, however, Paulson redoubled his bets, putting his hedge fund and his reputation on the line.In the summer of 2007, the markets began to implode, bringing Paulson early profits, but also sparking efforts to rescue real estate and derail him. By year's end, though, John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm--a figure that dwarfed George Soros's billion-dollar currency trade in 1992. Paulson made billions more in 2008 by transforming his gutsy move. Some of the underdog investors who attempted the daring trade also reaped fortunes. But others who got the timing wrong met devastating failure, discovering that being early and right wasn't nearly enough.
Written by the prizewinning reporter who broke the story in The Wall Street Journal, The Greatest Trade Ever is a superbly written, fast-paced, behind-the-scenes narrative of how a contrarian foresaw an escalating financial crisis--that outwitted Chuck Prince, Stanley O'Neal, Richard Fuld, and Wall Street's titans--to make financial history.
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