John Paulson’s Interview With the Financial Crisis Inquiry Commission: The Signs Were There

For those walking around with their eyes wide open at least ;-)

"John Paulson, of the eponymous uber-hedge fund did an hour-long interview with the Financial Crisis Inquiry Commission. I listened to it (thanks to NYT Dealbook, although not sure where they got it from), and really, I got a kick out of it even though I think my carpal-tunnel is really flaring up now. Anyway, without further ado, here’s what the man behind the Greatest Trade Ever has to say about the Financial Crisis…When asked what he saw, when, and why he decided to get short, he said “First thing we noticed was that real estate market appeared very frothy, values rose very rapidly, which led me to believe real estate markets were over valued.” That’s pretty simple/straightforward, no? I think it’s pretty interesting that he said the 3 homes he’s bought were all out of foreclosure, and they’d increased in value 4-5x over a 2-3 year period through ~’2005. Apparently the impetus for the research that led to The Trade was literally staring him in the face every time he got home from work!

 When asked what he saw, when, and why he decided to get short, he said “First thing we noticed was that real estate market appeared very frothy, values rose very rapidly, which led me to believe real estate markets were over valued.” That’s pretty simple/straightforward, no? I think it’s pretty interesting that he said the 3 homes he’s bought were all out of foreclosure, and they’d increased in value 4-5x over a 2-3 year period through ~’2005. Apparently the impetus for the research that led to The Trade was literally staring him in the face every time he got home from work!

He explained his approach, and the way he put it makes me really think the guys who didn’t leave their trading desks & “never saw the bubble/crash coming” really had their heads buried in the sand deeper than I previously thought. As Paulson said, “Credit markets were very frothy, very little attention paid to risk, spreads were very low, we thought when those securities correct, it could present opportunities on short side.”"