Is anyone else troubled by the fact that two guys named Paulson have been taking market views diametricaly opposed to one another for over a year and one is making billions and the other his helping him make billions with his astounding ability to misread the market? Lets think about it.
John Paulson is a hedge fund manager that has made many $ billions betting against the U.S. housing market starting in 2006 . John Paulson was in the news yesterday issuing dire warnings that the capital destruction within the financial sector has really only just begun. He believes that mortgage related losses for the financial sector (which I am assuming includes insurance companies like AIG and the GSEs, Freddie Mac and Fannie Mae) are going to total $1.3 Trillion. We couldn't agree more with John Paulson, as unfortunate as that is.
Meanwhile, Henry Paulson, Secretary of the United States Treasury, has been going against the grain since he took his cabinet position. Last spring he boldly pronounced that the "subprime" housing crisis was well contained and shouldn't spill over to the broader economy. Hell, forget the economy, he basically said that the category of "subprime" was an isolated sector and wouldn't spill over into other categories of mortgages. Also in 2007 he showed a surprising lack of knowledge for a former CEO of Goldman Sachs, with regards to banks horrific exposure to "off-balance sheet" structures like SIVs. When he finally got around to SIVs he proposed "Super-SIV". Super SIV would have been a multi-bank structure that would have essentially taken $ billions of missrated AAA CDOs and stuck them under the floor boards, exactly like Japan did in the 1990s. Luckily the deal never got done. Over the last 9 months, Henry Paulson has been cheerleading the economy and has been wrong almost everytime.
Ok, so what's my point? The point is, John is obviously a bear, short selling financials, buying credit default swaps on housing related assets and making money all the merry-long way. Few have helped him more along this path than Henry Paulson. You see, when you are the former CEO of Goldman Sachs and the current Treasury Secretary, lots of people listen to you. When he says things aren't so bad, or things are improving, investors act on those pronouncements and take the market up (or in the case of CDS, tighten spreads). Henry Paulson has been doing that a little over a year now. Everytime the market gets taken up, it just gives guys like John Paulson another entry point to set more shorts or buy CDS protection. It's like they've been working hand in hand!
My opinion here is no one is that smart (John) and no one is that stupid (Henry)! I don't know about you but I think it's time to take a deep dive into The Paulson Family tree!
OK, now that the SEC has charged both John Paulson and Goldman Sachs with setting up the prime mortgage crisis for Paulson to profit by betting against it, it's obviously time to follow the suggestion posed here about diving deep into the family tree. The odds of it being pure coincidence that one Paulson was the CEO of the firm making the other Paulson's scam possible and then occupied the one seat in government that enabled it to work, --and that these two Paulsons are unrelated-- were one in 1,705, per U.S. Census in 2000 (less by now, no doubt).
Posted by: Bob Beltran | April 17, 2010 at 03:34 AM