John Paulson went long Donald Trump when much of Wall Street went short.
Now, he’s reaping the rewards.
Since making a fortune on the U.S. housing collapse a decade ago, the hedge-fund billionaire’s company has played a key role in lobbying in Washington. Much of it is directed at Fannie Mae and Freddie Mac, the giants at the heart of the nation’s mortgage market.
With Trump’s victory, Paulson -- a political donor and economic adviser to the president-elect -- is already seeing a payoff. His funds have a stake in Fannie Mae and Freddie Mac, once virtually worthless, whose common-class shares have roughly doubled since Election Day.
Trump hasn’t said what he’ll do with Fannie and Freddie, but investors are betting that his arrival at the White House will mean some of the profits that are being sent to the U.S. Treasury go to shareholders instead.
That’s what Paulson and several other prominent hedge fund managers have been pushing for. They’ve spent years building a presence in Congress and the surrounding ecosystem of advocacy and influence.
Even after Trump’s pledge to “drain the swamp” of Washington, political donors and lobbyists for some of the nation’s wealthiest industries were linked to the transition team early on, though Vice-President-elect Mike Pence has since promised to remove them.
“My hunch is that every hedge fund has somebody in Washington by now, or will soon,” said Tim LaPira, an associate professor who researches lobbying at James Madison University.
Fannie Mae and Freddie Mac were taken over by the government in 2008, at an eventual cost of $187.5 billion. The Obama administration later changed the terms of the bailout, so that the government received most of the companies’ profits, and it’s more than recouped the bailout costs. Shareholders have been seeking redress in court ever since -- and also working furiously to change the policy and allow the companies to keep more of their earnings.
‘Should Be Reversed’