The Greatest Trade Ever

**Author:** Gregory Zuckerman

**Estimated Reading Time:** 45 minutes

**What You'll Learn:** How a relatively unknown hedge fund manager named John Paulson identified the housing bubble, constructed a massive bet against subprime mortgages, and earned one of the largest fortunes in Wall Street history. You will also learn about the broader cast of characters who saw the crisis coming, the financial machinery that made it possible, and the human cost of the collapse.

**Who This Book Is For:** Anyone interested in financial markets, contrarian thinking, risk management, or understanding how the 2008 financial crisis unfolded. This condensed edition is written for readers who want to understand the mechanics of the greatest trade ever made without wading through hundreds of pages of financial detail.

In the spring of 2006, while most Americans were enjoying the fruits of a booming housing market, a little-known money manager named John Paulson sat in his midtown Manhattan office staring at charts that made no sense to him. Home prices had risen more than 180 percent in some markets over the previous decade. Lenders were handing out mortgages to people with no income, no jobs, and no assets. Wall Street was packaging these loans into securities and selling them to investors around the world as if they were as safe as government bonds. And yet, almost nobody seemed worried. Paulson was worried. He was not a housing expert. He had never traded mortgages. He had spent most of his career quietly managing money for wealthy clients, specializing in merger arbitrage, a relatively conservative strategy that involved betting on the outcomes of corporate takeovers. He was known on Wall Street as a competent but unremarkable investor, someone who generated steady returns without making headlines. But the data he was seeing told a story that contradicted everything the market believed. Housing prices were beginning to stall. Mortgage delinquencies were rising. The exotic loans that had fueled the boom were about to reset at higher interest rates, and millions of borrowers would soon be unable to make their payments. Paulson realized something that almost no one else on Wall Street had grasped: the entire housing market was built on a foundation of sand. What followed was one of the most remarkable investment stories in financial history. Paulson and his small team constructed a series of trades that would profit enormously if the housing market collapsed. They used complex financial instruments called credit default swaps to bet against subprime mortgages. They faced skepticism from investors, ridicule from peers, and months of agonizing losses while they waited for the market to catch up with reality. When the collapse finally came, the payoff was staggering. Paulson's firm made $15 billion in 2007 alone.…