The New Market Crash Billionaire Maker: The Hedge Fund
“The situation has become so absurd that four hedge fund managers on Wall Street make more money in a single year than every kindergarten teacher in America combined — 120,000 teachers.” -Bernie Sanders, July 24, 2025
After the Great Depression, commentators noted that, while most suffered financial devastation, there were a few, whose methods were the financial equivalent of hyenas, profiting on the misery of others. They called them ‘market crash millionaires’.
In 1929, those people acted individually, but by the time of the Great Recession in 2008 these multimillionaires had improved their financial clout by pooling their assets into a group format called a hedge fund. Where once an individual may have had only had $50 million to invest, the group now had the power of billions.
Hedge funds caused and benefitted from the 2008 financial crisis in one of the largest upward transfers of wealth in the history of the world! — Greatly increasing economic inequality — that even now, goes largely unrecognized.
The movie The Big Short told the story of a few of these more colourful hedge fund money managers. They bet multi billions with the banks that the housing market would tank on specific dates. The banks took the bet and lost. Thereby exposing bank assets, including depositors’ money to seizure by the hedge fund creditors. Imagine the run on the banks if this had gotten out to the public.
These financial hyenas became honored if not worshipped in the media.
During the movie The Big Short, audiences cheered for the clever money managers because they outsmarted the snobbish bankers, who didn’t see the mortgage crash coming, even when the mortgage interest rates Jumped from 3% to 7%.
The government had to step in immediately with a $350 billion loan called a bailout to save depositors’ money, keep confidence in the banking system and keep banks functioning. That money went first to the bankers, so they got their bonuses and then flowed to the multimillionaire members of the hedge funds to satisfy the bets.
The media helped to cover this up by uncritically repeating that the banks repaid the bailout in full so there was no harm done — without understanding that the only way banks got their money to repay the bailout was by charging customers extra. Thus, passing those billions in extra charges extracted from bank customers up to the hedge fund members.
John Paulson, the outstanding hedge fund manager of the time, reportedly got about $20 billion of the bailout funds from betting against the housing market with the banks (Inequalty.org, Oct 12, 2020). His mind-boggling success was celebrated in the title of a book dedicated to him, The Greatest Trade Ever: The Behind-The-Scenes Story of How John Paulson Defied Wall Street and Changed Financial History.
Because of an SEC lawsuit against Goldman Sachs, we have the details of one of his trades called Abacus 2007 — AC 1:
• Paulson selected mortgages for a CDO and brought the package to Goldman Sachs to promote.
• Goldmans retained a supposedly independent asset manager, ACA Capital, to evaluate the quality of the mortgages, which it did as AAA.
• To Goldman’s knowledge, Paulson bet that the CDO would fail (shorted the CDO) using a credit default swap.
• Goldman sold the CDO to a German bank and other clients without disclosing that Paulson had shorted the CDO by using that credit default swap.
• The CDO failed.
• Paulson made $1 billion on the credit default swap.
• The SEC charged Goldmans and a low-level young employee, Fabrice Touree. Goldman was fined $550 million; Touree $825,000. His salary in 2007 was reported to be $2 million.
The SEC did not charge Paulson.
Modern US Role Models
Tourre did not feel the slightest twinge of conscience knowingly selling these toxic investments to pension funds. To the contrary, he found it humorous. This is from an email to a girlfriend:
“13 June 2007
“Just made it to the country of your favorite clients [Belgians]!!! I managed to sell a few abacus bonds to widows and orphans that I ran into at the airport…” (Reuters,
Tourre was to walk out of the courtroom a convicted felon for fraud into a classroom to teach undergraduates in the economics department at the University of Chicago. But after the student newspaper reported this, the economics department said he would not teach undergraduate but fulfil his PhD requirements by teaching graduate students — as if that was somehow better (Mother Jones, Feb 27, 2014).
As for Paulson, besides being honoured by a book dedicated to his financial prowess, Paulson used his gains so that university students at prominent universities would see his name honoured on campus buildings:
• Harvard renamed its engineering building the John A. Paulson School of Engineering and Applied Sciences (Lewin, NYT, June 3, 2015).
• New York University named the first-floor lobby of Tish Hall, the atrium in the Stern School of Business and a new building in the Washington Square campus after him (Wallstreetonparade, Ap 14, 2014).
• The London school of economics established the John A.Paulson chair in European political economy
• The Hebrew University of Jerusalem established the Paulson Bar-El Building for Computer Science and Engineering (Jewish News Syndicate, June 21, 2024).
Next will look at how they are continuing this upper transfer of wealth on a daily basis.
This is the second post in the series on the predatory tactics of hedge and private equity funds. The first post is here.
