Chapter 3

The Risk Arbitrageur

John Paulson

Paulson & Co.

Nothing is right in all markets at all times.

—John Paulson, May 2011 Midyear Investor Conference

Hedge fund manager John Paulson had traveled from New York to Capitol Hill to address the Committee on Oversight and Government Reform on November 13, 2008. A series of well-executed complex trades at the height of the financial crisis had made Paulson a very rich man at a time when many banks and institutions were on the brink of collapse. Among these was a trade that has been widely hailed as far and away the greatest trade in financial history, one that earned his firm a record $15 billion by the end of 2007. Now Congress wanted to hear what he had to say about the systemic risks that hedge funds posed to financial markets, and to listen to proposals for regulatory and tax reforms.

Paulson was not the only hedge fund manager who had been summoned by the Committee that day, although he was certainly the best performing over the past year. Joining him was fellow subprime winner Phil Falcone, as well as George Soros, the head of Soros Fund Management, Jim Simons of Renaissance Capital, and Ken Griffin of Citadel, all industry legends and billionaires in their own right. Each of these industry titans would have his turn to address the Committee, but right now the floor was Paulson’s. The entire room, indeed, the entire financial world, wanted to hear what this man had to say; his remarks were running live on CNBC, Bloomberg, ...

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