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Paulson Hard at Work on the New Subprime


Hank Paulson lamented the disappearance of the subprime markets in a speech today as he discussed the housing market and its continuing headwinds. His talk covered predictions of further trouble, including the warning of a possible 2.5 million foreclosures this year, and discussed the Treasury's ongoing efforts to encourage workouts in lieu
of foreclosures that could be reasonably avoided. Paulson also repeated his position that "untenable" mortgages shouldn't receive a bailout from Washington.
The interesting part was his plea that the US "not lose the benefits of the subprime market as we eliminate its flaws." Paulson said that his boys were working on the possibility of covered bonds playing a major part in the mortgage market as a means to increase the availability of mortgage financing. The loss of financing for subprime mortgages has made the correction "more challenging."
Hank might say that it makes this particular headwind fiercer for the economy; since we prefer swimming metaphors to sailing ones we would use "treading water." "Caught in the undertow" and "flailingly struggle to overcome the current" also come to mind.
Paulson: Home Foreclosures Will Remain High [CNBC]
Paulson Touts Covered Bonds As Way to Boost Homebuying [Wall Street Journal]

--Senior headwind correspondent Andrew.


Paulson and Co Investor Finds New And Interesting Way To Kick John Paulson When He's Down

As Paulson and Co employees, clients, and people named John Paulson do not need to be told, the past year and half has not been the most joyous of times for the hedge fund giant. After making billions shorting subprime mortgages, the firm ended 2011 down 55 percent, was down 16 percent through the first half of 2012, and as of July, saw assets under management decline 44.9 percent to $21 billion from $38.1 billion, due to a combination of unfortunate performance and redemptions by investors so angry at the fund that they've felt the need to repeatedly tell anyone who will listen that parting ways with P&C was among the best if not the best decision they've ever made. One investor that hasn't had to consider voicing its unhappiness to the press or even worry about losing money at all? The 92nd Street Y. Last November Paulson guaranteed that he would personally cover their losses, whatever they turned out to be, come year-end. And the generosity did not stop there: for this one investor only, Paulson offered his services pro-bono, waiving all fees. So while he probably didn't expect representatives of the Y to rent a skywriting plane to proclaim their love and appreciation for him over midtown, lobby the city of New York to get 92nd renamed Paulson Street, or have his face tattooed to their chests, he probably also figured they wouldn't turn around and hit him the mother of all slaps in the face. In this case the declaration that despite the highly favorable terms of their arrangement, any involvement with P&C still felt a tad too risky for everyone's comfort level. In the midst of the financial crisis, the 92nd Street Y came up with a sweetheart deal for its endowment: investments in funds run by the likes of John Paulson, Marc Lasry, and other hedge-fund luminaries that were fee-free and guaranteed against losses. The strategy performed well for several years, said people familiar with how it worked, as the Y benefited from risk-free investing in some of the fund industry’s most successful strategies. But, concerned about the impact of a catastrophe in which a money manager couldn’t repay losses and eager to construct a more diversified portfolio, the Y recently opted to redeem its hedge-fund investments, these people said, and rebuild its financial strategy from scratch. Paulson himself is worth $15 billion, so a catastrophe in which he couldn't repay the Y's losses would have to be a big one. And don't give him some line about how you're pulling out of all hedge fund investments and it's not personal. You could have let him have this. Despite Sweet Deal, 92nd Street Y Redeems Paulson Money [CNBC] Earlier: John Paulson: I’ll Get The Losses This Year, Next Year We Go Dutch?

Not Thorell but could've been. (Getty Images)

Visium Informant Worked Hard For The Money

Jason Thorell wasn't just some layabout government witness.