KEY POINTS:
It is a jarring comparison for the millions of American homeowners struggling with their soaring mortgage payments, but one man has profited so much from the credit crisis that he is jumping a few rungs on the property ladder this year.
He is John Paulson, a previously obscure hedge-fund manager from New York, who took home US$3.7 billion ($4.68 billion) last year, after betting on a calamity in the mortgage market.
It is certainly the biggest single pay-day in the history of Wall St, more than twice anything previously achieved even in the bloated hedge-fund industry.
It is worth spelling the total out with all the zeros: US$3,700,000,000, the equivalent of a lottery jackpot every day for a year.
No wonder Paulson is trading up in the Hamptons, the playground for New York's rich and famous, where he has just bought a 4.2ha lakefront compound - complete with staff quarters and ocean views - for $41 million. His more modest seven-bedroom, 1.2ha "cottage" 1.6km down the road is up for sale with a price tag of US$19.5 million. (In another example of his trading acumen, that is a profit of almost US$7 million in the two years he has owned it.)
Alpha Magazine, the industry journal that did the sums, calls his performance last year "the greatest hedge-fund trade of all time".
It has turned Paulson into an industry legend overnight, courted by bankers and politicians, anxious for insight on how bad the housing crisis in the United States and the global credit crunch might still get.
With his new-found influence, his Manhattan-based hedge fund, Paulson & Co, has been able to sign up Alan Greenspan, a former head of the Federal Reserve, as an adviser. The appointment raised a chuckle in dealing rooms across the city, since Greenspan is being damned as the architect of the housing market's disastrous bubble.
Paulson's story is rich with other ironies. Now 52, he learned his trade in part during four years at Bear Stearns, the investment bank which lost billions last year making optimistic bets on mortgages that were the mirror image of Paulson's.
Its collapse last month is the defining catastrophe of the credit crisis.
John Paulson set up his hedge fund in 1994 and spent more than a decade as a middle-ranking fish in an increasingly crowded pond, until realising 18 months ago the mortgage market was headed for disaster as millions of US homebuyers were signing up to loans they would not be able to afford.
He calculated there would soon be a day of reckoning for borrowers and their profligate lenders.
Putting his own money, his clients' money and billions of dollars of borrowed funds into the bet, he won big. Paulson & Co, his fund, had US$6 billion under management at the start of 2007 and US$28 billion at the end.
- INDEPENDENT
