if your recommendations were implemented, don't you think it would affect the way monetary policy works because the fed has to be able to effectively and quickly manipulate the credit. and they across-the-board limits were imposed, wouldn't that create a barrier to the fed changing liquidity? in the markets? >> it would mean that the economy is better protected from mistakes in monetary policy. but it should not change the way that the fed sets monetary policy. in fact, it lessens the pressure on the fed to try to recognize asset bubbles and pop them before they happen. ...

>> greg zuckerman senior writer at "the wall street journal" talks about john paulson, whose

hedge fund a $20 billion by betting against the housing market in 2007 and 2008. mit's sloan school of sloan school of management and cambridge, massachusetts, hosts the 50 minute event. >> thanks are much. i appreciate the opportunity to come speak about my book, a passion of mine, my baby. and i love discussing it. i still find it interesting so i hope you guys do, too. so i will talk a bit about the lessons from the research behind my book, and i will also talk a little bit about what's going on in wall street with some of the big traders that i cover day today, what they're betting on and betting against. i will leave some time for q&a. out and find in these kind of settings people have an interest in discussing journalism, financial journalism, or have say. perhaps "wall street journal," and what we are focused on, those kinds of things. so feel free to ask about the

book or any of those kinds of questions as well. my book is called "the greatest trade ever." it's about the winners in the whole crisis. and just taking a step back, i would to you about myself and how i found this project. i have been at "the wall street journal" about 13 years, and i've cover different things, the bond market, i have written and i write about hedge funds. i've always been very interested in, fascinated by trades. and strikeouts and big home runs, as it were on wall street. i guess i'm a sports guy, so i like big strikeouts and home runs at and as a writer there's a lot of drama in lessons to be learned from people than it really good decisions and do really well, as well as those who kind of make mistakes and

you can learn from those as well. those are the most from and most interesting to me. so here i was in the fall of 2007, sitting at my desk, and things were starting to get bad. wall street firms were losing lots of money. merrill lynch, citi, and i was cutting some of the stuff, some of my colleagues in trying to figure who was next to fall and who would have more problems. things got much worse obviously, and i got a call from a big hedge fund manager, and sort of, we trade information, and he said, i just play tennis with a guy his name is john paulson. i barely knew who he was at the time. and i just could not believe how much money he's making now while everyone else is losing money. and it was intriguing conversation, both because it was a guy who's actually doing well as the world was starting to employ, but ultimately

because my contact was among the biggest hedge fund managers out there on wall street and most respected investor. he hardly knew much about this guy, john paulson. so if you did know much about him i hadn't heard of john paulson and met with him a few times that he wasn't on my radar screen at the time. he was the one which triggered this whole thing out. it got me excited. i started working on this project. i voted front page story for "the wall street journal" and i followed it up with about a year or so on my book, and my book is about the winners in this crisis, as i said. john paulson and others, but behind it all, what tells it all is sort of a conundrum that it shouldn't have been john paulson. it shouldn't have been these investors that i write about who made the billions and figured it out and anticipated this collapse.

the investors who should have been the ones i was writing about the included people like george, bet against the british pound at a time. that had been the greatest that ever until john paulson and the investors i write about. they should have got to stay, he didn't warren buffett odyssey, greatest investor of our century, the passenger or so. he could have done and didn't do. mike is an expert in mortgage-backed securities and that's what john paulson threw himself into learning about and analyzing and betting against. am gym is the most famous short sell out their, and this trade is a short sell, a betting against. david tepper was someone i wrote about more recently who made $7 billion last year, and he is known for his deep traits, big bets. he doesn't care if they go up or

down. very volatile. he didn't do anything. he was told about this trade. including some of the people i write about said hey, you need to be doing the straight and he didn't. and that kind of fascinates me and continues to do so, and yet, so what does this group of kind of big names on wall street. and those that did include john paulson as i mentioned. just to tell you about john paulson, he spent a year -- excuse me a career on wall street. he went to nyu undergraduate. did very well. went to harvard business school. started off as an investment banker bear stearns and then he left to do his own investing, his own hedge funds. but what he focused on, he specialized in was merger arbitrage. merger arbitrage is basically you buy the stock is being acquired and you short or you bet against the company that is doing the acquisition. you shake it up a bit and sometimes he did.

it's not full of raise. you can do better than the next guy and john paulson had a good career and had a good track record. but he never did more than 15, 20% gains in a single year. and yet he was the one who did this trade. his right hand man, the one really key in this trade is a german named paula pellegrini. and he is a native of italy. and also smart graduate of harvard business school. he is even more unlikely to play such a crucial role in the greatest financial coup in history. he's been a clear coat -- kicking around wall street that he didn't do very well. never got a promotion that he always wanted. he never really rose very far, and the leading and end up trading on his own.

he didn't go so well. he traded, try training, he was twice divorced and traded some of his wisely, didn't do so well. [laughter] >> you don't want to do that too much. he had this great idea, always had great business ideas, but didn't work out so well for him. again, sharp as they come, and yet he calls up in the spring of 2005, he was out of a job living in westchester north of new york city, a one bedroom apartment that he had two children from his marriage is and he did want to go back to italy and maven behind them his children so he really wanted a job. he was approaching 50. it's a young person's kind of business, finance industry, and he was aware and he called a john paulson in astoria job and they overlapped all of it at bear stearns and paulson took his calls.

paulson said the only job i really have here, as an analyst. you don't want that job. and he said i will take a job. i would like that job. and he ended up joining paulson & co., and again unlikely, two years later in the fall of 2007, he was on vacation with his third wife. [laughter] >> talk about the greatest straight ever. [laughter] >> he was on vacation with his new wife and i think it was -- they stopped and checked the atm. she stopped to get the money out of the atm, and she hadn't told his wife too much about the trade they were working on. he's a little superstitious and he didn't want to jinx it too much. she had a vague awareness it was going pretty well, not many

details. he didn't give her too many details. so she is at the atm and she steps in and says paolo, $45 million is in our account. and at that time he really had very little money in his bank account which was kind of shocking. that $45 million was part of the $175 million that he made from his bonus, for that trade for the year in 2007. so again he goes and having nothing really, and one bedroom apartment 2005, two years later he is $175 million in the bank and having a good time. so i can come he is unlikely. the other characters i track equally unlikely. there is a doctor turned investor in northern california named michael. michael was early on this before paulson or maybe others, and a headstrong guy, a little bit stubborn, he didn't always get along so well with his own investors.

a lot of people didn't believe in him. he was a doctor and he's doing really well with betting on stocks, but this, as will talk at any second, this trade was derivatives, mortgages. a lot of his own investors didn't believe in him. and they were skeptical, and kind of persisted. really both a kind guy and a generous guy, but he can be stubborn and again, unlikely and an interesting guide to help pull this off. and in southern california another guy i write about, jeffrey green, who was for this kind of clichéd hollywood type that he was a real estate investor who made a lot and lost it all. and had made more afterwards. he got the idea from john paulson and runs with it. they were good friends. he did a lot of his own work and gets a lot of credit as well. kind of the obvious guide to pull off the greatest trade and

financial history. and there's a young guy, and santa monica, california, who was more of a server that an investor and he is very passionate about his investing. the only thing really is as passionate about it legalizing marijuana. so again, you can talk about both. you can go off on both of them. again, the guy really wasn't one to predict that there's another guy who was a traitor at deutsche bank come and still is as of right now. he ignores them and he really risks his career to bet against housing and bet against mortgages and to pull this trade off. so in my view these guys are all sort of the climbing up a mountain and they're going to the top and paulson makes it to the top and a few others come close, and why some succeed and why some didn't is a fascination

of mine and that sort of what i wrote the book and these guys are in it. so that's sort of drives the book, as well as the dynamic of writing about winners. i thought you would be more enjoyable to write about and to read about the individual to figure this out and we can learn from them as opposed to those who made mistakes. so that's another reason what i threw myself into this book and into this project, and i still find it kind of fascinating. first thing i wanted to discuss is why the experts didn't see it. and that kind of runs through my whole book, because it's a fascinating, curious time in our financial system, in our nations history. because the very people get -- that created this toxic mortgag and toxic investment, all these kinds of things that blew up, this right, where the very

people that got burned most by them. and there is sort of his view now that those investment bankers were sort of evil and out to get the investors. i don't think that's the case, and the proof being they get hurt the most. if you think about it, citigroup and merrill lynch, a lot of other of the major names, investment banks are the very ones who created this stuff. so in other words, it's almost like a butcher who had this poisonous, or maybe pseudo-poisonous i guess that's the point, brings it home and brings hope and surge to the kids. and why that's the case, because again there's a sort of understanding that, they knew what they're doing and they can avoid it on investors and they really didn't. i know some of these people, but gentlemen in my community, a little town in new jersey, and she created, he works at lehman

brothers and he create some of the cdos the. so i talked to some of these people. i have gotten some of the observations as it were. to try to answer that question. so i've only been curious about it, and some of them are kind of more obvious than others. if you think about it, instead of an evolution maybe they're always has been. there is an evolution, was an evolution in the creation of some of these investment products. first you had mortgages and then you mortgage-backed securities, and then they involved into some other debt products to create these cdos. credit default swaps obligations and then have other versions and credit default swaps. things really evolved. and became much more complicated each year and if one is trying to outdo the next in terms of creating these products. and to me, it got to the point where the very people at investment banks didn't under

understand them. if you had senior people. the senior people, the roberts and chucks, stan o'neal, the first two gentlemen help run citigroup. and they were just too seen and they did know what many of these products were or the risks. and they deferred to the people below them. and you can criticize them for that but they deferred to people below them who were the experts as well as the model that everyone was relying on. and these models were based on historic data, and a lot that is based on the fact that housing in our country had ever fallen on a national level. at least more than a small blip of a month or two, if that. so the models all kind of said the stuff is safe, relatively safe. and rating agencies all said it was a. so is a bit of a passing the buck and a bit of well, i can't

understand myself so i will just defer to the experts. the experts were either rely on models or they were focused on their competition. and on wall street, unfortunately, we're at the point where everyone is worried about the next guy and if one is worried about the next worker and meeting earnings. so my friends in my town, not a bad guy, he just knew that he wasn't creating this ceo, even if that wasn't toxic, somebody else will be. i don't think also he thought they were so bad. they got caught up in it. and it effect, the more each group, each group know about their own area and the risk level. and maybe they said yeah, i can see what that could happen but they didn't have a general of the larger view of how could it affect other groups, how the dominoes could fall in the overall risk of the firm. there were some firms better than others. goldman sachs did a much better

job in sync with the risk is throughout this whole system. that said, goldman sachs would delay catching us as well. they would get a lot of credit, you either love them or hate them, but in the spring, actually fall or late summer of 2006, josh bernheim who is the head trader at goldman sachs was that paulson & co., and he was over there, invited by john paulson after you establish this bet, shorting against these toxic mortgages, toxic mortgage product. and he was bullish. and paulson invite him over there and he gets a lot of credit. ever listen to that paulson invited groups of illness, many of them are to challenge the thesis. he sits across the experts that paulson and he is the number one guy on the street. and he knows his stuff better

than paulson. he says whatever you're selling i'm going to buy. and the guy of the paulson who are taken aback. was he trying to help them again as he trade with them and maybe it's time to help them out why was he trying to fake them out a bit. maybe he was sick of taking the other side of their position because they were shorting and shorting. and maybe he was trying to tell them stop it so much. they weren't really sure. all the newest at top guy in the business was telling them, warning them. and yet they kept with her tray. again, that says to me, paulson gets a lot of credit but goldman sachs, to their credit, they turn on a dime and they realize in early '07 how dangerous some of this was that was sitting in a book. they turned around and not only shed some of it but they started shorting it. to me that's kind of a mark of a great investor and great friends. so they got a lot of credit, but

going back to my artist name, the experts really didn't see this coming. and part of it is they are too caught up in their own world, and when it comes to the experts who should've seen this coming, the mortgage experts. there were guys who do with mortgage products day in and day out for years. years and years. this is what they did. and yet this merger guy, john paulson was the one who realize how toxic it was. why was that? part of it is because it's all relative value on wall street. you don't make home runs too often. so in this world, short of the bond world, there's all sorts of what will of mortgages looks better than the next. made i will buy this one, short this would've i can. it's all relative value. that speaks to kind of a problem on wall street. if you think about it, the people that rise to the top at the firms, are people that play

by the rules, are the people that kind of our really good in institutions, the geithner's and the bernanke's and hank paulson, moynihan, bank of america. there are people that really good within these firms. but these firms don't usually have people sitting around thinking about details, the bad things, what bad can happen, or taking a step back. chuck prince's same something we have to keep dancing until the music is over. that was sort of the attitude on wall street were maybe i'm a little worried about this product that i've got i am selling to investors, but if i don't sell it, if i don't put it on my books, someone else will and i will lose maybe a few cents per share, et cetera. that's a real problem on wall street where we don't really have the people that speak different. we'll have enough of these people they're part of the issue is the hedge fund will because

it pays so well. and it draws out -- it doesn't draw talent, the moynihan's and the bernanke, all those kinds of people that play by the rules. the hedge fund guys are very entrepreneurial. it's one reason i enjoyed writing about them. they speak of a bit outside of the box. i don't think they're that smarter than the people that were in the firms but it sort of self selecting group of people that take the risk and go join a hedge fund or to run a hedge fund. they don't like working for the people often, and they think about what bad can happen that often, they are a little more skeptical. and unfortunate they get drawn out of these firms and what's left are really sloppy people that are worried about a quarter to quarter to often. goldman sachs does little and i think part of the reason because they keep a relationship. by definition, entrepreneur people i think made want to

start a hedge fund, they know that half of them, many of the hedge funds are started by ex-goldman sachs guys. so maybe my definition, the entrepreneur ones go to golden and goldman to their credit keep in touch with a lot of the ex-goldman people so that if you're a risk manager at golden sachs, i think it's easy to make a few calls to see what the real risks are out there as opposed to be another firm and maybe that's some kind of lessons that other firms can learn by. but there is the sense that i had that each of these firms became more leveraged, and didn't realize the overall scope of the risk, and instead cut us off the subsets in their own world and no one was able to take a step back. the other point and forgery, or for julie you make so much money on wall street that there aren't many people with a great experience, institutional experience. there are many people who work on wall street, the implosion of

long-term capital management in 1998. in any other industry, the people that do really well usually stick around, they don't make so much that they retire. but these guys can retire after 10, 15 years if you're really good. so the really good ones often left either to start hedge funds or to retire and live on some eyes and. unfortunately, the ones that were left were much younger and they hadn't remembered that in the early '90s how the market actually did have some problems. it was on a national scale but clearly there was some history, and some of the older people actually remember that. john paulson was approaching 50 years old as was paolo pellegrini, jeffrey green, the playboy investor out in california. he was approaching 50. so there's something to be said for having that experience are at least having someone in your firm with some of that experience, too often some of the firms i think on the street

don't have those kind of people with that kind of expense. a lot of things move and come in and you have to have patience. and that's not exactly a virtue that is rewarded at many firms on the street. again, a lot of competition and, you know, things change slow. and it really did come it took years. it's a myth that people weren't bearish on housing and were worried about housing. my brother has written about some of those kind of issues and documented, they're all kinds of people who bet against housing in 2003, 2004, and they got burned. some who could hold on ended up doing really well and making a lot of money. that it's hard to when we're in a world where it's much easier to be compared and compare yourself against others, your other managers or other investment firms, and people used to the, made on a courtly

basis or yearly basis, not day. people look at the screens and they know what they're doing. they know the piano, profit and loss every minute. but they also know they have a sense where the competitors. i talk to these guys. people often criticize me, criticized "the wall street journal" for negative stories. you always write negative stories about hedge funds and industry. the stories come from people in the industry because they'll hear what each other are doing and they are the first ones to kind of call up and tell me that they're doing poorly. that's because they are very focus on each other. they are doing well for the investors. it's a fascinating thing where they are very worth is often determined by a computer screen, and the p&l for that day, if you could have done really well the year before and, you know, these guys as well as i do, or you have a career of making so much money you don't have to work. about these guys i talk you

don't have to work, they really don't. they probably should be curing cancer, but they are not. [laughter] >> instead they're focused on this day, this trade and this year and this quarter. and today, and trying to beat the next epic half of them are former athletes or wannabe. that makes them happy. there's an argument, probably another discussion, outpatient capital, could be a good thing. would probably have to many of these guys. focus on these kinds of traits but we do need sharp evil allocating capital the way where it should be. so these people are very focused on themselves and on the competitors, and these firms are very focus on their competitors come and that cost them by think in the end. they saw the into middle changes but they didn't take a step back and kind of see what could happen, what some of the details might be. the other thing i found in my research for this book is one of

the reasons why people do this trade, i will explain in a second, is it cost money. what i mean by that is, i will explain that. basically subprime trade is one that john paulson and the other investors that i focus on is basically, here, i will cut take you to john paulson. he was in 2005 or so, and he has these big words about housing. he is not a housing guy. he bought a house or do. but he is not a housing guy. he is looking for protection on his overall portfolio, but puts on the s&p 500 which we protect down side if the stock market fell. they were expensive at the time, so he's looking for some other way to hedge himself. and pellegrini, again his right hand man, native of italy, he had been just that the firm for about half a year or so. he said, well, john, you might want to think about credit default swaps. credit default swaps sound complicated but they're not

really. they're basically a derivative a way to kind of insurance yourself, insurance contract. you can do it on anything. and it ensures debt. so debt, default by that debt, default but you have this insurance, credit default swap insurance and you're protected. so pellegrini senator paulsen, you should look at these credit default swaps do. it protection downside and just like any insurance contract, your downside is protected because you pay a certain amount for a protection, just like any insurance premium. you pay an annual fee and you're protected. so paulson is like wow, i never knew much like this. i made heard of this credit default swaps derivative instrument. and he throws himself into learning about it. to me that's what the most impressive things about those that did this trade. if you think about it, many of these investors were approaching 50, and had already done really well. credit default swaps are complicated, or they can be very

complicated and they are derivative. warren buffett warned about derivatives. weapons of mass destruction. i talk to some of the top investors bill gross is the bonking in california. and he said you know, derivatives are what i do. i could do about my investors don't want me to do so much of a. it's true, a lot of investors are wary of the credit default swaps, these derivatives investment and they eventually helped lead to the downfall of aig so there is reason to be wary of them. but john paulson threw himself into learning about them. and the ins and outs of an pellegrini as well. the thing about credit default swaps is they cost money as i said. they are like an insurance contract that they were dirt cheap. in 2005 they were dirt cheap. in 2006 also. and yet, no one else was behind too much. but john paulson came from this other world. here he is, big words about

housing and pellegrini tells them about the credit default swaps and he says wait a second, my downside is like 7% of them might upside is hundreds of% a year. that's how they work out the tree. why isn't every doing this trade? sort of the question i get asking, one of the reasons is negative carry. negative kerry is sort of competition but basically just means you are paying out. the beginning of the year and would start focus on themselves and other competitors. and to pay out, by this insurance, i don't want to be behind my computer. we will be a behind by more than half a percentage point, even by a lot of credit default swaps. but no one wanted to buy, be happy% would either competitor. is a fascinating because the outsider them which would have backed up the truck and bought as much as possible. but people on the inside worried

about being up 7% for the year when your big competitor is up 7.5% a you. not buying this debate about people said yes, i understood the trade, i got it. and that was sort of their justification. and i think maybe that world is you would rather risk being -- it's actually worse for a lot of these people. it's worse being behind the half percentage point or a full percentage point from your rivals that it is missing out the trade of a lifetime if it means that everybody else missed it out. missed out on the tree. that's what happened that most people missed this trade, so the guy that passed on the trade still has his job and still making 2 million a year, and passed on the trade, greg but look at me now, doing pretty well. so it's funny, the guy that takes the most risk in my book

as a guy named greg litman because greg litman was anything. he was working at dutchmen bay. people thought he was great. people make fun of them. they call him a fool because he was worried about housing, and he was buying these credit default swaps. people were working with him, his senior people, his bosses, they all kind of said, well, yeah, you can do a little bit of that, greg, check back with us day. don't they got too much respect and he ended up doing some things just to make money to keep his bosses happy so he could keep the trade on. but if this trade had work he would've been known as the fool who bet against housing. greg, did you know housing never goes down on a national basis? banks can cut rates. greg, don't you know you're taking a career risk? and yet he stuck to his guns. if you add in down the straight, he would still be making too much a year.

and housing collapse, perfect storm. we all write about the perfect storm. people made mistakes. and didn't see this thing coming. the perfect storm, and people that blew it came up with this kind of explanation, perfect storm. so greg litman could've said yeah, i miss the trade but so did everybody else. analyst, all our analysts said don't worry. so he takes a real career risk and he takes the biggest risk to me of anybody in this, that i write about, largely because he had more downside when it comes to this stuff. basically making a good living and he does the trade anyway. so those are the people that should have done it, and again, i guess one of the things that i've come to the conclusion, wall street talks of a game

about being contrary, being contrite investors. there are books written. they are not contrary and at all. there are more than ever people jump on trades and that's what i think people are in the age of bubble where the hot trade is communicate much more easily than ever before, and sort of maybe a separate topic, i think we're in this paper as an academic you would think that market should be coming, should be becoming more efficient over time, right? not more inefficient. get more information out there. investing i should say. slip of the tongue. and you would think thing she becoming more efficient, you should have fewer bubbles, not more bubbles over time. and yet, he counts made 26 or so financial bulbs in the last century. just think of the last two years, the housing bubble, energy prices, oil prices,

jumped up and down, asian markets, asian currencies, 1997 or so, and the tech bubble obviously was a huge bubble. and it is my view that it is easier than ever for people to jump on trades. it used to be the case that, i'm a commodity expert, i don't anything about stocks. how do i do it. nowadays, etf and credit default swaps and other kinds of derivative ways to express the trade. into the it's leading to just more of these bubbles so we will have more of them and people putting on the trade. and it's troublesome. it's worrisome, and you wonder kind of where we are now. maybe china, maybe brazil was up about 100% last year and people have talked to any music as a bubble. i'm not saying it is but i do think we're kind of at the point

where there may be too many of these bubbles, and it is costly. and again, wall street is not as contrite as it thinks when it jumped on the bubble, force because they are worried about what the competitors are doing as they don't want to be left out. i've been running a lot about the pigs trade. i think we outlawed that. i apologize. portugal, italy, ireland, greece and spain. so is betting against those countries, betting against the debt of this country. and all kind of invest are doing it. it's not just if you're sovereign debt expert, bond experts, people are experts in international affairs or anything like that. people who never do anything about these countries, i'm sure they can find on a map, i hope to. they are piling on the street. it's just interesting dynamic and you're going to get more of these and it's hard to be a contrary and on the street, harder than ever i would think. so why was it these investors that i write about, why was john

paulson and paolo pellegrini, greg litman. again, there is a myth out there that everybody drank kool-aid and their buddy and housing between my brother, between 2002003 to about 1400 mentions of the phrase housing bubble in articles in u.s. publications. over the next three years there were 5500 managed of the trade. are big stories and promised was a big newspapers and other places so it wasn't a case that my investors that i write about were the only ones who were skeptical. a lot of people were skeptical. so why was it day, that came up with a. one reason is they were, some of them were a little late to the game. and that can help. good fortunate here is important as well. there were investors who put on this trade and bought credit default swaps, this insurance, on subprime mortgages and about

in 2003, 2004. and nothing happened. and the bosses got upset, and they said trade off. their investors got upset. they were losing money. other people bet against homebuilders who tried to come up with another way to bet against housing. and there were a lot of great ways. there were, if you bet against, let's say, a homebuilder, it didn't work for longtime and and even if you were convinced that eventually it would work to a lot of consolidation in the industry, and maybe the one you bet against actually ends up doing very well. there was that change. a lot of times it her people. so there weren't a lot of ways to get cautious about housing. you could move the mrs. and the kids out of the house and read it that's hard. they have friends. a lot of stuff and house. not easy to do. there weren't many ways to do it, and of those that were word and dvds credit default swaps

out early, it took people a while to be really great trading mechanisms. and it is one thesis that it took until 2005 and early 2006 for the to be a really great way to bet against housing, bet against subprime mortgages. that was credit default swaps. and you can bet against kind of a pool, you didn't have to own the pool. and just kind of bison insurance. and the index which tracks subprime mortgages. that was all introduced kind of '05 and '06. that is not acquitted and that perhaps that's when things started imploding. it wasn't easy to bet against housing, and it was better to be late than to be early on this trade, and that's what john paulson and some of these people had going for them and that they got nervous about housing. in 2005, and in 2006 is when things start finding out, and then 32007 is when the implosion

and it all kind of fell apart, the housing market. so it helped being late and having some good fortunate there. it also helped knowing the expert. as i said, john paulson to his credit, invited all kinds of endless, top guys into his firm to challenge their faces and to their credit, they stuck with the thesis, and they held onto it. i give them more credit for that than i do just putting on the trade and being early, holding on to your convictions. and it's a remarkable temperament that allows yourself to do the. you have to be really self-confident and ignore everybody else. what happened was paolo pellegrini came up with his chart, and it showed housing prices on a national basis over the past 35 to 80 years or so. and basic is right in front of the them. things are kind of slowly, slowly, slowly growing and they shot a. they figure, pellegrini timothy

paulson as a check this out. paulson sat back in his chair and said look at this day. it's right here. it's clear. that's why they held onto. the irony here is they want the first people to come up with a day. and had our been published may be a year earlier but pellegrini came up with it himself and he was convinced of it as they paulson and they held onto the conviction. it was pretty impressive because again, it's hard when you all the experts telling you one thing and your clients were nervous. there were a lot of investors who didn't really believe in the trade. some do and some realize the downside and a huge upside. but hey, here's a stock i, merger guy, john paulson, designed on the subprime protection for? that's why paulson was smart in that he had a lot of his own funds but he said if i'm really going to make a big huge bet here i've got to set up a new

fund, just dedicated to this trade, a one trick done. not a lot of people on wall street to do that. they are doing of our target and others that but at the time to what many people. how do you have one trait in a find? when he first started raising money, john paulson had difficulty but he only raised $147 million at the get-go in the early 2006 for this dedicated them. he was rejected time after time. he went to harvard and they said we don't see it, we don't get it. they didn't do this trade but they felt they had a better way to do it. he got rejected there. he got it rejected a lot different place. the experts all told him housing doesn't fall on a national basis. how are you going to get out of your trade? things like that. also stuck to his guns. that kind of conviction to me is pretty impressive. as is, i'm really impressed by how he held onto the trade, and i'm going to take him in 2007

come in february 2007, they made 66% in a single month. just to give you some context, they never made more than a few percentage points in a single month. 66% at one but. they made no and one morning than george sorensen made betting against the british pound. george soros made about $1 billion betting against the british pound. and paulson was making billions and pellegrini have never been paid much before succumbs to his boss and said we should be taking some this trade off, right? and paulson said no, don't forget the day. look at the day. he did need to take his promise like others would have. so he held on to his conviction. again, you are up 66% in a month and your own officials called up and said you mean, 6.6%? there's a typo here, right? and they said no, 66%. and some of them said take the

trade off. so that encouraged into. some of them said, well, move me to another fund which doesn't have much exposure to these subprime cds credit default swaps which is where the trade was. and paulson did and he didn't kind of break stride. he held onto the street. again, that kind of convention to me as impressive. to make him he gets all kind of credit for that. the other lesson here the other kind of thing that i've learned from paulson and this trade and i've learned from other people, that done really well and i written about is the idea, the idea of going for the jugular. and when you see an opportunity, there aren't many, like in sports. too many metaphors in my book our sport and i apologize for that. but it's very much like sports where every at bat they say you have one or two pitches to hit. summer going to be bad pitches, some our pages you can't have a

pic but you will get one or two. those are ones that you have to pounce on and hit out of the ballpark. it's funny, talking to the investors, they talk about the same thing that paulson and soros and buffet and pepper, they say you're not going to too many of these opportunities and but when you having had to go forth and. and that's sort of where paulson gets a lot of credit. he saw this huge opportunity and he jumped on it. he backs up the truck and ignore everybody else. it's a cliché because in yourself but they have this remarkable ability. it's almost these guys paulson and others, they have the ability to kind of turn on a dime. and paulson for example, in 2007, $15 billion betting against housing and betting against subprime mortgage that again, by far the greatest trade and financial history. source met a billion dollars betting against the bridgetown in 1992. than 2008 he made another

$5 billion transforming the trade and is where he gets a lot of credit as well in my book, my eye, my book, no pun into that shifting the trade from one someone is it is housing to one against financial firms because he saw where the dominoes would fall. he says the housing is falling apart. subprime is melting down. they realized look at citi, these firms, bear in layman and they started buying credit default swaps not on the mortgages which they had been doing but on the firms themselves. they made another $5 billion doing that in 2008. but didn't early 2009 can he doesn't just take the trade off, he starts going on. he starts buying the very day that he had bet against. it's a remarkable to my roots impressive, it is impressive as an investor, and i see all the time the best investors have almost this way of looking at the port for the. they don't fall in love with investments which is what the average investor often guns. someone told me that you don't want to be married to these

kinds of people. they can kind of separate and not get tied up in most. it's not that john paulson doesn't want to be married. he's a good father and it has been, until. budget will fall in love with the porsche oil and togetherness to make for some nsa want to be friends with. but it is a great investing trade not to be so emotionally involved and invested as it were in your portfolio. the going for the jugular and not kind of falling in love with your investment. those are sort of some of the themes that i picked up from these investors and been impressive to me. i was just going to segue just a bit to why, what this kind of investors are doing now. and the biggest trade, there've been to ask the. won his gold string. so in late 2008 as things are melting down and we are throwing

money at all the problems out there, as a government, he start taking a look at gold because he's worried about the money supply leading to inflation and gold is a great way to hedge. away to hedge inflation. there been other top investors buying gold as well. it is a fasting investment in very different from housing that because there's much more downside. we don't know what gold is worth. what is gold worth today? 1100 that is that cheap? i don't know. you can dividend mom picked it doesn't pay a dividend. what is gold worth a why do we like gold? david einhorn, he has evolved in queens somewhere filled with gold. he doesn't own it because his wife is a big fat of gold or anything. he likes go because he thinks the next guy will like it even more. so that sounds like a greater trade. you have historically thousands of years old has held up as an alternative to paper currency so

yeah, i did it. gold is not a bad place to be. i find it could double in price and could be cut in half. others are betting against these countries like greece, some of the others and it done really well with it. and it is an interesting trade. it's not clear how you're going to make money on the upside if things really employed, who's on the other side. it's a little bit like cvs tree. he had we but who is on the other side of these traits. what a lovely people are betting on is just either euro implodes and collapses, or just that yields on about these bonds, these debts, is just going to have to go higher as continue to go higher. and in the real homerun trade is japan. some of the investors are banning its interest rates in

japan which have been low for. they are about 1.3%, 10 year japanese bond. 1.3 present. they haven't been about 2% in years, and yet and that's what it's cheap to bet against them by credit default swaps or by other foreign currency moves that are an effective that that if rates go higher, then japan will have trouble paying its debt and they will have to restructure. doesn't have to go much argued they argued before the interest cost gets high and the venue had trouble. i love people are betting against japan, and see how that does. so those are the big trades working on right now. and i invite any and all questions about anything i've written about in the book, "the greatest trade ever" or anything else i writing about right now. [applause] >> we only have time -- i find it interesting that all of the

greatest trade ever and the second greatest trade ever, the pound, were short. do you think that there are more great traits among short that long? >> they tend to be more asymmetrical, and that's what these guys look for. so the crowd friendly country and generally does well, the heard, and things have improved over time. so the outlet kind of trade is often the shortridge. is not always the winning one but that often is. [applause] >> greg zuckerman is a senior writer at the walter joe and right for papers heard on the street column. for more information visit gregoryzuckerman.com. >> booktv is live this weekend.

ariel glucklich, what are some of the best qualities of religion tt you claim are also dangerous? >> the single most important quality of religion is that it makes people happy. but the way it makes people happy is by social integration, bite getting them to belong in a group. now, if the group demands that you do certain kinds of things in order to become a member, you become the bennett on those demands, you might do anything. and if the group is the wrong kind of group, you might be

actually a dangerous person. so the good thing is happiness. the bad thing is depending on that for your sense of fulfillment. that's the problem. >> who is dying for evan? >> people diaphragm to feel like they don't belong. and that they need to prove themselves in order to belong. the group that tells them that they're going to heaven is usually a religious group. but the problems that they have to begin with is not a religious one. the problem that they have is they don't belong. and that's what's happening around the middle east and asia today, there's too many people no longer belong in any recognizable group. that's what you see all the violence there and not here. >> how did you come up with your theories? >> i have been doing psychology of religion for over 20 years, and i've studied other cases of

people injuring themselves for religion. for example, rights of passage or pilgrimage, where the pilgrims walk on their knees or initiation and so forth. we have all seen monks who are whipping themselves and that sort of thing. so i am an expert on why religious people feel that they need to hurt themselves in order to get what they want. which is spiritual salvation. >> where do you teach? >> georgetown university. >> ariel glucklich, "dying for heaven: holy pleasure and suicide bombers - why the best qualities of religion are also its most dangerous." >> here's a look at some upcoming book fairs and festivals over the next few months.