The Greatest Trade Ever fitted my agenda really well. I had wanted some light reading as I traveled and Zuckerman’s account of how John Paulson bet against the US housing market seemed as good a read as any. As a non-financial person I found some if it very illuminating:
- Like innovations such as the the light bulb there were a number of people trying to make this trade work, some of them like Michael Burry had the trade messed up by his own investors who were withdrawing funds as he was making money killing the trade in the water. Quite why Burry was a zero and Paulson was a hero wasn’t clearly articulated
- The banks not only packed toxic investments that drove the market but also developed the interests that could hedge against it in a cost-effective manner, with many of them screwing themselves
- Banks actively screwed their customers, even when they were being paid for advice. If I did that as an agency person I would leave myself open legally and would also likely get censured by the CIPR
- There was generally a lack of critical thinking and what-if scenario planning at the banks involved. On the one hand some of the most numerate people I have known come from an investment banking background. On the other hand investment models are often kludged together with massive Excel spreadsheets and macros – which I imagine plays hell with trying to get a helicopter view of an institution’s financial position
- The key problem was one of timing, with investors essentially continually betting on black until the roulette wheel swung in their favour. They had no sense of the when beyond a vague ‘soon’
Zuckerman managed to make the subject matter accessible and understandable. One gets the sense that Paulson was fortunate rather than immensely talented as there didn’t seem to be a lot separating him from other people making the same bet until he rolled the dice one last time.