“Who controls money controls the world.”
Just when investors seemed optimistic about the incoming Obama administration, the reality came crashing down. For those that needed affirmation, Henry Paulson, head of the “for profit” Federal Reserve Bank announced that the U.S. has been officially in a recession since December 2007. What he should have said was that the U.S. is heading for a depression that will make the crash of 1929 and Great Depression that followed look like a Sunday school picnic.
“You have deterioration in almost every asset class,” Paulson says. “You’re looking at declines in housing prices, the health of manufacturers and the earnings of various companies. There are rising delinquencies in auto loans and commercial real estate.”
Paulson, looking every bit like an elite investment banker, doesn’t beam as he utters this, even though with each new calamity his bottom line grows. Paulson & Co. funds generated profits of more than $3 billion for the firm in 2007, mostly by betting the housing bubble, swollen with subprime mortgages, would burst. As that year ended, he set his analysts pouring over the balance sheets of overstretched financial institutions, including many in the U.K. “We focused on those banks with lots of mortgages,” Paulson says. “After those companies fell, we expanded our focus not just to mortgage assets, but to all credit classes.”
Many Americans are unaware that four of Paulson’s funds were among the 20 best-performing, and the 20 most profitable, hedge funds for the first three quarters of 2008.