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Zeitgeist of the Great Crash of 2008

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hangchoi:

--- Quote from: chin on 23 January 2010, 01:30:48 ---I just finish reading "The Greatest Trade Ever" last night. This is one of the many books that came out in the last few months about the great crash of 2008. It's about how a few investors, mainly John Paulson, foresaw the coming crisis and make profit from it.

--- End quote ---

I got something more from "The Big Short". Paulson actually was not the first one who foresaw this crisis. Somehow he may be told by others. Guys like Steve Eisman was almost the first one to plan how to earn big money from the crisis. He did what you said (shorting the security of related business, etc.) but (according to the book) the most important move was that he tried to use derivatives to short the mortgage loan with banks. He even made the first short-sale contract by himself and used that for negotiation with i-banks. His drafted contract was later used as a framework for future transaction of similar kind. However, things like CDO was later developed by other i-bankers and this messed thing up further. He did that in about 2004, and started to sell short in 2005 as he noted that the prime rate for mortgage will be revised 2 years later, i.e. 2007. So his "investment" period was originally only 2 years to 2007 as he gambled that prime rate in 2007 will have a huge increase after review. He, together with just a few investors, was gambling against the whole market at that time. Paulson joined to short it a year or 2 later on CDO part.

Yes, they have foresight, courage, greed and perseverance to hold his gamble to the end but the risk is horribly huge. At that time, the whole market was so crazy that almost no one in wall streets understood what they were doing and trading. Even after the crisis hit as they rightly foresaw, they may still lose if the government bailed out the defaulters too soon.

hangchoi:
Off track a bit from the US to Europe....

This video is funny to explain the problems of EU.......

http://www.youtube.com/watch?v=7s44vuVR0BY

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