Betting Against Subprime: Big Risk Led To Big Gains


"There's no question I got the idea from him, he didn't get the idea from me!" Greene said. "He kind of showed me in 30 minutes or so with his slides of how it worked. And his fund wasn't really ready at the time to invest in [it]."

"I said, 'John, can I do this on my own?' And he said, 'No, you'll never get approved. It's an institutional trade.'"

Dozens of hoops and 17 bank executive signatures later, Greene became the first individual investor to trade in subprime mortgage backed bonds.

While much of Wall Street placed their bets on these subprime loans, Greene saw that it was a shaky foundation and couldn't last forever.

"What made me believe that, was that I could see this whole market was propelled by looser and looser credit," he said.

He saw it because he lived it in the early 90's when his empire collapsed with a similar problem, only in commercial loans. Greene said his success was not at the expense of the American homeowner.

"My trade was with Merrill Lynch and JP Morgan," he said. "I made a bet — that these bonds would not be paid off because housing prices would not go up any further and couldn't go up any further, because nobody could afford them already where they were."

However, Greene does believe that homeowners were victimized. He says that, by 2005, banks had issued $500 billion in subprime mortgages.

"Buying a home is the American dream and they relied on their local real estate agent, they relied on their local mortgage broker and jumped in and had a very bad result."

Greene said that investment banks need to "come completely clean" with their records in order to bring the market back to normal.

"I think that people don't really know the extent of the toxic waste that's in some of the largest investment banks, and banks in the world," Greene said. "Until that is defined, and we really know the conditions and financial markets, we won't really know where the real estate market is going."

The Pay-Off

Greene is now focused on the life he shares with his new wife Mei Sze in their 43,000 square-foot estate.

"This big house takes some getting used to," he said. "I don't really understand how people can live in these big palaces at this point, but maybe we'll get used to it as time goes on."

Or perhaps they won't get used to it. Greene and Sze spend most of their time at their modest Malibu home that rests on five spectacular oceanfront acres. They share it with their dog and funny miniature pet horse named Winston.

"This is home," Greene said, referring to his more modest Malibu estate. "It has a certain simplicity and peacefulness which I think is really what everyone strives for in their lives. As much as you try to surround yourself with all these big homes and cars and planes and complications, at the end of the day, I think, basically, most people just want to be in a beautiful place with friends, family, people they care about. That's what this means to me."

Because, even for Greene, there are some things you just don't risk.

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