This post is part of our feature on Money Winners of 2008. See all 20.
Lots of people thought real estate was overpriced. Many worried that banks were giving out mortgages too cheap. But what did you do about it? (Either to help the situation or to make money.) Jeff Greene, a real estate mogul in California, actually found a way to bet against the subprime mortgage folly. He made $450 million -- at least that was the count earlier this year.
Well, he didn't just think of it on his own. He basically took the idea that his friend, hedge fund manager John Paulson, had. Paulson thought that, as an individual, Greene wouldn't be able to do this complex a transaction. According to the Wall Street Journal he even used special software so investors in a hedge fund Paulson created just to exploit the subprime crisis couldn't pass on his strategy.
How Greene and Paulson made money involves two financial terms you've probably had to learn this year and never want to hear again. Collateralized debt obligations (CDOs) are the way mortgages are packaged and sold to investors in various slices of risk. Credit default swaps are the holders of those investments insured themselves -- by buying what was like unregulated insurance from one another. The credit default swaps are what got so many big companies in trouble -- they had to pay up on investments that went bad. So Paulson shorted CDOs and bought some credit default swaps.
Paulson used both those techniques. I'm not sure which Greene used. My guess is that given all the hurdles he describes jumping over, he was buying credit default swaps.That's sort of the equivalent of buying life insurance on some guy you think it taking too many risks and might end up dead. Turns out Greene was right.
Be sure to check out more Money Winners of 2008.
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The week in preview: Earnings from Walmart, Macy's, and other retailers
Six top trades for the rest of 2009
Reader Comments (Page 1 of 1)
12-15-2008 @ 2:35PM
BHarrison said...
Oh . . . I see . . . it was really very easy for these 'insiders" to use the FRAUDULENT CDOs to basically "STEAL" money from the irresponaible companies. While Congress should have had regualtions against these types of transactions (but they voted no to do that), these are still unethical and "criminal invetments" in my opinion . . . the results speaks for itself, right? These guys should be "branded as "bandits" for what they did . . . they basically took other peoples' monies for something that they had no vested interests in, right? The politicians, attorneys, and "corrupt" businessmen are killing our economy and our society . . . and they have no qualms about doing any of it, if it is technically not prohibited by law, right . . . So, there certainly cannot be any questions or opposition to having reasonable and adequate "regulations" to provent this type of busness activities.
Well, Iguess that Pauson and Greene, and others who have "profited from these types of "transactinos" might oppose any regulations though . . . (Personally, I'd like to see them be indicted and prosecuted for FRAUD, which is what I think all of this is.)
12-28-2008 @ 3:22PM
answer to a higher authority said...
Well.... whether they are believers or not... everyone that has profited by conning (or cunning, yet deceitful) methods... will have to answer to a higher authority than a government agency. While it may not help anyone during their lifetime... KNOW THIS... time will always tell. And GOD knows all. The bible is quite explicit in that businessmen should do business honestly, fairly, and above reproach.
I'm betting NONE of these men tithe, either.