4 ms·

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

eru 18y ago
And short sellers are the defense of capitalism against bubbles. (Not always working --- but at least they have an incentive to pop bubbles.)
- Rod 18y ago
  Exactly. Some comments on this: http://www.automatedtrader.net/announcements-1748.xhtm http://www.automatedtrader.net/announcements-1748.xhtm
mdasen 18y ago
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 took advantage of that. It's part of our system and that's fine and all, but it certainly isn't something I'm going to be all, "that's the way to do it!" He didn't do anything wrong. He played by the rules from what I know. However, he really took advantage of something in a way that raises moral questions. 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. Yeah, it's how our system works and I don't really disagree with your sentiment, but it still leaves me feeling a little gross about him as a person. Capitalism allows you to act without regard for morality so long as it's within the law and that's fair game. Doesn't mean we need to like the people who do act that way.
- whacked_new 18y ago
  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 properties of an imperfect system. And he won't be the last.
  - rockbilly 18y ago
    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.
    - skalpelis 18y ago
      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.
      - whacked_new 18y ago
        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.
    - whacked_new 18y ago
      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.
      - coliveira 18y ago
        "At the cost of the happiness of others" You cannot consider happiness as part of the equation. People were happy enough to sell financial instruments to Paulson at a profit. Now they are sad because they lost money in that transaction... Why all the complain? Everyone should just learn a lesson in investment from this situation.
- dgabriel 18y ago
  Why are we downvoting this comment? It's not offensive, and it contributes a different viewpoint to the conversation. Is it going down because the opinion the poster presents is unpopular?
- Rod 18y ago
  "Capitalism allows you to act without regard for morality so long as it's within the law and that's fair game. Doesn't mean we need to like the people who do act that way." It's easy to be "noble" when you don't have the chance to be "evil". Don't get me wrong, but I find it very, VERY hard to believe that if you were on Paulson's shoes and had the chance to make some $3.7 billion, you would still be so moralistic. Paulson made money within the law (though "unethical" his trade may have been). Seems to me that people who bash him are just jealous. Paulson can now invest some money in new businesses and create some value. He took money from the idiot banks and those who invest in them. I won't shed a tear.
  - steveplace 18y ago
    How was his trade unethical? Shortsellers are not evil. Financial speculation is amoral.
    - Rod 18y ago
      "Unethical" was tongue-in-cheek. I whole-heartedly agree with you. Short-sellers are necessary. Speculation is amoral. Trading is war. If one does not want to get shot, then one should not go to war, period. It's soooo amusing to see the big banks who professed "free markets" and "deregulation" now advocating that short-selling is evil. It's the "heads I win, tails you lose" kind of thing. "Free markets" are only good just as long as they're winning...
      - steveplace 18y ago
        On a related note, I'm kicking myself for not holding on to my HBC puts I bought yesterday. Guess I was feeling a little too ethical.
- steveplace 18y ago
  The value of what he did comes in liquidity to the market as well as the returns his customers received.
- biohacker42 18y ago
  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!
- sethg 18y ago
  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.
- 1gor 18y ago
  >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.
  - condor 18y ago
    he created $15B of net worth for his investors, not value. It was a wealth transfer, no net creation.
    - coliveira 18y ago
      He offered the service of buying financial assets from people who wanted to increase their gains by amplifying risk. Whenever you offer a service you expect a reward.
      - condor 18y ago
        not disagreeing or saying he didn't 'earn' the money, i think he did. but he did it as an agent of efficiency vs. innovation/creation.
        gaius 18y ago
        Operations can be innovated too. E.g. Dell creates no new technology in their products, but they did a whole lot of value-creating innovation in their supply chain.
    - axiom 18y ago
      It was a wealth transfer, no net creation. Not so much. He allocated resources correctly. That's what putting money in the stock market is fundamentally about. If you allocate resources correctly, you win. Allocate them incorrectly and you lose. He made $15 billion by pushing down prices of assets that were overvalued (that's what short selling does.) i.e. He made the crisis slightly less terrible by driving down prices of junk securities (only slightly because 15 billion is a drop in the bucket compared to the size of the market as a whole.)
- brl 18y ago
  "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.
- coliveira 18y ago
  Of course he created value. The value of markets is to reduce the risk of individual transactions (or to amplify it, if you want to increase your risk and improve your gains). This guy was taking a lot of risk while accumulating positions against the global market. He could lose all his investment if things were different. This allowed others players in the market to "hedge" their risk -- clearly, they didn't think this meltdown would happen.

eru 18y ago

And short sellers are the defense of capitalism against bubbles. (Not always working --- but at least they have an incentive to pop bubbles.)

Rod 18y ago
Exactly. Some comments on this: http://www.automatedtrader.net/announcements-1748.xhtm http://www.automatedtrader.net/announcements-1748.xhtm

mdasen 18y ago

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 took advantage of that. It's part of our system and that's fine and all, but it certainly isn't something I'm going to be all, "that's the way to do it!" He didn't do anything wrong. He played by the rules from what I know. However, he really took advantage of something in a way that raises moral questions. 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. Yeah, it's how our system works and I don't really disagree with your sentiment, but it still leaves me feeling a little gross about him as a person. Capitalism allows you to act without regard for morality so long as it's within the law and that's fair game. Doesn't mean we need to like the people who do act that way.

whacked_new 18y ago
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 properties of an imperfect system. And he won't be the last.
- rockbilly 18y ago
  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.
  - skalpelis 18y ago
    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.
    - whacked_new 18y ago
      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.
  - whacked_new 18y ago
    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.
    - coliveira 18y ago
      "At the cost of the happiness of others" You cannot consider happiness as part of the equation. People were happy enough to sell financial instruments to Paulson at a profit. Now they are sad because they lost money in that transaction... Why all the complain? Everyone should just learn a lesson in investment from this situation.
dgabriel 18y ago
Why are we downvoting this comment? It's not offensive, and it contributes a different viewpoint to the conversation. Is it going down because the opinion the poster presents is unpopular?
Rod 18y ago
"Capitalism allows you to act without regard for morality so long as it's within the law and that's fair game. Doesn't mean we need to like the people who do act that way." It's easy to be "noble" when you don't have the chance to be "evil". Don't get me wrong, but I find it very, VERY hard to believe that if you were on Paulson's shoes and had the chance to make some $3.7 billion, you would still be so moralistic. Paulson made money within the law (though "unethical" his trade may have been). Seems to me that people who bash him are just jealous. Paulson can now invest some money in new businesses and create some value. He took money from the idiot banks and those who invest in them. I won't shed a tear.
- steveplace 18y ago
  How was his trade unethical? Shortsellers are not evil. Financial speculation is amoral.
  - Rod 18y ago
    "Unethical" was tongue-in-cheek. I whole-heartedly agree with you. Short-sellers are necessary. Speculation is amoral. Trading is war. If one does not want to get shot, then one should not go to war, period. It's soooo amusing to see the big banks who professed "free markets" and "deregulation" now advocating that short-selling is evil. It's the "heads I win, tails you lose" kind of thing. "Free markets" are only good just as long as they're winning...
    - steveplace 18y ago
      On a related note, I'm kicking myself for not holding on to my HBC puts I bought yesterday. Guess I was feeling a little too ethical.
steveplace 18y ago
The value of what he did comes in liquidity to the market as well as the returns his customers received.
biohacker42 18y ago
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!
sethg 18y ago
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.
1gor 18y ago
>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.
- condor 18y ago
  he created $15B of net worth for his investors, not value. It was a wealth transfer, no net creation.
  - coliveira 18y ago
    He offered the service of buying financial assets from people who wanted to increase their gains by amplifying risk. Whenever you offer a service you expect a reward.
    - condor 18y ago
      not disagreeing or saying he didn't 'earn' the money, i think he did. but he did it as an agent of efficiency vs. innovation/creation.
      - gaius 18y ago
        Operations can be innovated too. E.g. Dell creates no new technology in their products, but they did a whole lot of value-creating innovation in their supply chain.
  - axiom 18y ago
    It was a wealth transfer, no net creation. Not so much. He allocated resources correctly. That's what putting money in the stock market is fundamentally about. If you allocate resources correctly, you win. Allocate them incorrectly and you lose. He made $15 billion by pushing down prices of assets that were overvalued (that's what short selling does.) i.e. He made the crisis slightly less terrible by driving down prices of junk securities (only slightly because 15 billion is a drop in the bucket compared to the size of the market as a whole.)
brl 18y ago
"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.
coliveira 18y ago
Of course he created value. The value of markets is to reduce the risk of individual transactions (or to amplify it, if you want to increase your risk and improve your gains). This guy was taking a lot of risk while accumulating positions against the global market. He could lose all his investment if things were different. This allowed others players in the market to "hedge" their risk -- clearly, they didn't think this meltdown would happen.