The Man Who Made Too Much • Hacker News Board

Re: The Man Who Made Too Much

#21

Post by whacked_new » Wed, Jan 14, 2009, 4:20 PM UTC

rockbilly wrote: post #13

whacked_new wrote: post #10

Earlier quoted context omitted.

I'm not the trader type and I don't like the idea of such extreme income disparity, but to say that Paulson didn't create value is factually incorrect; he created it in the same way as the banks you mentioned did: by exposing and exploiting a market inefficiency and causing it to patch itself up. The reasons behind his actions can make him a saint or an asshole, but the fact that people like him exist just reveal pro…

Banks can make money by exploiting market inefficiency but banks also create real value. A loan to start a business creates value if the business works.

Surely; but suppose Paulson didn't do what he did. The capital that didn't go into his fund would have gone into other instruments that produce effects elsewhere (ultimately ending up in some conversion to value somewhere in the chain, big or small). The money made from these other instruments will be used for X purpose. The money lost is simply lost.

Paulson simply sped up the reaction. At the cost of the happiness of others, maybe, but it was still a market inefficiency. There could have been 1000 mini-Paulsons, each making 1000x less, but the net effect, as far as the market is concerned, is the same. It's just very indirect and detached from noble intent (but who knows).

Alas, they're all of the same mold.

Re: The Man Who Made Too Much

#22

Post by biohacker42 » Wed, Jan 14, 2009, 4:23 PM UTC

mdasen wrote: post #7

quellhorst wrote: post #3

I don't see this person doing anything wrong. People are envious of someone else doing well.

I don't care that much, but I can see why people might. He didn't create value. Like, when PG creates something, it adds a certain value to society. Even when PG puts money behind a firm like Disqus, he enables value to be added. This guy didn't create any value or enable value creation. He just saw a situation he could take advantage of. The banks had created value, but not as much as everyone had thought and he too…

I agree that a lot of financial magic often adds no value what so ever.

But I've always thought that short sellers have at least one function beneficial to society.

They are the ones either whispering or yelling the king is naked.

The sooner and the louder they yell, the more contained the damage is from the nekkidness!

Re: The Man Who Made Too Much

#23

Post by whacked_new » Wed, Jan 14, 2009, 4:26 PM UTC

skalpelis wrote: post #15

rockbilly wrote: post #13

Earlier quoted context omitted.

Banks can make money by exploiting market inefficiency but banks also create real value. A loan to start a business creates value if the business works.

By the same logic he kept the market in check so that it wouldn't implode catastrophically, therefore allowing banks to exist and continue their business giving loans to start a business.

The market probably wouldn't have imploded one way or another; just that if it was more stable, the risky earnings would either be smaller, or take longer to materialize. (as before, I'm treading in a sea of assumptions)

But once the market does calm down again, there will be a new Paulson. Perhaps the day this is ever fully prevented is the day that humans become permanently immune to all possible diseases.

Re: The Man Who Made Too Much

#24

Post by mynameishere » Wed, Jan 14, 2009, 4:32 PM UTC

JoelSutherland wrote: post #4

ph0rque wrote: post #2

What a whiny tone in the article... the man made money on people's downfall; why doesn't he repent? He must be punished!

Agreed strongly: One reason for this is that Paulson was able to recognize and act on the unimaginable—that the banks, which took on most of the subprime risk, had no clue what they were holding or how much it was worth. More Paulsons and maybe the banks might have 'imagined' this possibility. How is it possible to be morally outraged with the irresponsible banks and Paulson.

You agree strongly that it's whiny then quote something not in the least whiny?

Re: The Man Who Made Too Much

#25

Post by gruseom » Wed, Jan 14, 2009, 4:36 PM UTC

Left unexamined is the uncomfortable moral dimension of Paulson’s achievement. If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down?

Give me a break. He should have gone on Faux News to be shouted down and laughed at? Who would have listened to this guy?

This line is so indicative of bad journalism (practically a tautology, that phrase) that even though I want to read the rest of the article and am interested in the topic, I think I'll pass.

Re: The Man Who Made Too Much

#26

Post by sethg » Wed, Jan 14, 2009, 4:44 PM UTC

mdasen wrote: post #7

quellhorst wrote: post #3

I don't see this person doing anything wrong. People are envious of someone else doing well.

I don't care that much, but I can see why people might. He didn't create value. Like, when PG creates something, it adds a certain value to society. Even when PG puts money behind a firm like Disqus, he enables value to be added. This guy didn't create any value or enable value creation. He just saw a situation he could take advantage of. The banks had created value, but not as much as everyone had thought and he too…

I'm not a big fan of capitalism, but if it's OK to borrow money¹ and buy stocks with the hope of profiting on their sale, then it's just as OK to borrow stock and sell it with the hope of profiting when you buy it back again. If there's a problem with short-sellers trash-talking perfectly sound companies, there's at least as much of a problem with investors overhyping unsound companies.

Remember the valentine's episode of Futurama? Bender is selling roses and when he knows that Fry is over a barrel he hikes the price incredibly saying that demand just skyrocketed.

I haven't seen the episode but from your summary it sounds like Bender is doing what economists call "rent-seeking", profiting from his monopoly power (if Bender didn't enjoy any monopoly power then Fry could have just bought roses from someone else). I don't see where Paulson was rent-seeking; he was buying and selling in a market where there were lots of other people going after the same securities.

¹...and of course with our fractional-reserve currency system, in a sense, the vast majority of money is borrowed money.

Re: The Man Who Made Too Much

#27

Post by tokenadult » Wed, Jan 14, 2009, 4:46 PM UTC

"If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down?"

If he was trading with real money, he was giving quite enough of a signal to the market. Plenty of people were writing about the possibility of the housing bubble popping, and about derivatives being "financial weapons of mass destruction." The people trading as if those warnings weren't important threw caution to the winds, and have no one but themselves to blame if they didn't learn from the behavior of the counterparties to their trades.

From farther down in the linked article: "By 2005, the amount of money he could make on the riskiest securities was not enough to justify the risk he was taking. Pricing, in his view, made no sense. Paulson concluded that he could do better on the short side--wagering that prices of risky securities would fall."

Re: The Man Who Made Too Much

#28

Post by 1gor » Wed, Jan 14, 2009, 5:02 PM UTC

mdasen wrote: post #7

quellhorst wrote: post #3

I don't see this person doing anything wrong. People are envious of someone else doing well.

I don't care that much, but I can see why people might. He didn't create value. Like, when PG creates something, it adds a certain value to society. Even when PG puts money behind a firm like Disqus, he enables value to be added. This guy didn't create any value or enable value creation. He just saw a situation he could take advantage of. The banks had created value, but not as much as everyone had thought and he too…

>He didn't create value.

???

He created $15 billion of value for his shareholders.

>The banks had created value

The banks have destroyed their shareholders' and depositors' money by investing in junk and failing to prepare for a downturn.

Your 'moral' arguments are upside down.

Re: The Man Who Made Too Much

#29

Post by JoelSutherland » Wed, Jan 14, 2009, 5:19 PM UTC

mynameishere wrote: post #24

JoelSutherland wrote: post #4

Earlier quoted context omitted.

Agreed strongly: One reason for this is that Paulson was able to recognize and act on the unimaginable—that the banks, which took on most of the subprime risk, had no clue what they were holding or how much it was worth. More Paulsons and maybe the banks might have 'imagined' this possibility. How is it possible to be morally outraged with the irresponsible banks and Paulson.

You agree strongly that it's whiny then quote something not in the least whiny?

You're right -- the part quoted is not whiny in tone, but it is whiny when taken into the larger context of the article. I find the blame game that has come with the financial collapse to largely be "whiny". I hear the following complaints repeatedly:

* The greedy banks were giving out loans to people they knew couldn't afford them.

* The greedy people were taking loans on homes they couldn't afford.

* (Now) Paulson was greedy to profit on the system collapsing.

Of course everybody was acting greedy! That is the idea behind capitalism. Complaining about greed in a system based on greed is unproductive and whiny.

Re: The Man Who Made Too Much

#30

Post by brl » Wed, Jan 14, 2009, 5:48 PM UTC

mdasen wrote: post #7

quellhorst wrote: post #3

I don't see this person doing anything wrong. People are envious of someone else doing well.

I don't care that much, but I can see why people might. He didn't create value. Like, when PG creates something, it adds a certain value to society. Even when PG puts money behind a firm like Disqus, he enables value to be added. This guy didn't create any value or enable value creation. He just saw a situation he could take advantage of. The banks had created value, but not as much as everyone had thought and he too…

"The banks had created value, but not as much as everyone had thought and he took advantage of that."

He didn't 'take advantage' of anything. He did his homework and reached an accurate and objective conclusion about the state of the financial system. He then provided this information to the markets by betting on what his research predicted.

The real people who were taking advantage of the situation were the counterparties on his trades who were recklessly speculating on an unsustainable bubble (with other people's money).

He was so successful doing this because at that point there were so few other dissenting voices to compete against. I don't know how you can say that it provides no value to be right when everybody else is wrong.