By Josh Friedlander
Greatest Trade Ever
By Gregory Zuckerman
"The Greatest Trade Ever," Wall Street Journal reporter Greg
Zuckerman serenades subprime seer John Paulson, and does a deft
job of making esoteric credit default swap trades
understandable in the context of a droll, and sometimes
gripping, narrative. The tale includes delicious details about
the ascendance of John Paulson as reformed Hamptons party
animal now heralded as a genius for making billions of dollars
by betting against conventional wisdom.
But Zuckerman's tome suffers from the lack of a moral
framework, and his overly dramatic novelization fails to
soberly contextualize the story of John Paulson's winning
In his best section, Zuckerman explains how several Wall
Street firms assisted Paulson in creating bespoke pools of
mortgages wrapped in collateralized debt obligations
specifically designed by Paulson so that he'd have more junk to
bet against. Paulson provides the weak rejoinder that the banks
were free to alter his designs as they saw fit and that no one
was forced to buy the CDOs, which were purchased in any case by
sophisticated investors. "We thought the CDOs and other risky
mortgage debt would become worthless," Paulson says in the
book. "But we didn't know."
Yet Zuckerman doesn't dwell on a possible characterization
of Paulson as a wilier operator than his Wall Street victims,
instead portraying him as a buttoned-down underdog Everyman.
"When it rains and he can't find a cab, Paulson still hops on a
New York City bus," writes Zuckerman. How shocked Zuckerman
must have felt when Paulson attacked the book.
"The book is a disappointment. It contains numerous
inaccuracies and fails to capture the essence of the credit
bubble," said Paulson in a press release. "The writing style is
indicative of a gossip tabloid rather than respected financial
journalism. Unfortunately, the opportunity to create a
meaningful documentation of an important time in financial
history was lost." Paulson's credibility suffers, however, from
his refusal to say what the inaccuracies were.
Zuckerman has responded that the book "wasn't intended as a
hagiography, but as a portrait in full. I stand by its
accuracy, as does my publisher."
But one grows more understanding of Paulson's position when
considering Zuckerman's depiction of him as a loser who finally
made good with one brilliant insight instead of a
through-and-through Wall Street success story, which is what
The book jacket says that Paulson had "spent a career as an
also-ran on Wall Street" and the introduction states that "By
2005, Paulson had reached his twilight years in accelerated
Wall Street-career time."
Paulson managed only $300 million at the end of 2002, but by
July 2006, when he launched his credit funds, his firm managed
$4.81 billion, putting Paulson within the top 100 hedge fund
firms in the world. He was already known as a man capable of
finding gold nuggets in a compost heap, as Absolute Return
pointed out in its
April 2005 cover story.
Through mid-2006, Paulson's flagship Paulson Partners had
produced a compound net annualized return of about 16% since
its inception in July of 1994, and had suffered only one down
year (1998). This is excellent performance. It requires a
funhouse mirror view of history to paint Paulson as anything
but a man in the prime of his professional life when he began
to implement his short-subprime trade.
Yet Zuckerman, while printing these facts, finds ways to
downplay them, reverting to a focus on Paulson's personal life
or his mood or his mode of dress when the story of his firm's
ascendance in assets and prestige might disrupt the tidy
Rocky-style narrative arc he's tried to construct.
In its ultimate hyperbole, the book goes a bit far in
claiming that Paulson's $4 billion in personal take home pay
from his 2007 trades was the "largest one-year payout in the
history of the financial markets." Accounting for inflation,
that distinction, at least in modern times, belongs to a sum
conferred by another "JP," JPMorgan, to Andrew Carnegie in
1901: $226 million to incorporate his empire into U.S. Steel.
Narrowly computed, Carnegie earned perhaps $6 billion, but in
1900, his take was 1.17% of that year's gross domestic product.
In 2007, that would equal $164 billion. AR