Who lost the $1 billion that John Paulson's Paulson & Co. made on the bet that is now at the center of the Securities and Exchange Commission's complaint against Goldman Sachs? The SEC complaint is pretty explicit about the obligation of the largest counterparty, ACA Capital. Its obligation was taken over by ABN Amro Bank N.V. which was taken over in 2007 by the Royal Bank of Scotland. In August of 2008, according to the complaint, RBS paid Goldman Sachs $840,909,090, most of which Goldman then paid Paulson.
What the complaint doesn't mention is that about two months later, in October of 2008, the British government stepped in to take over RBS with an injection of tens of billions of British taxpayer funds.
The other big counterparty in the Paulson-Goldman Abacus trade, the German bank IKB, also had a government backstop, the Financial Times reports today. IKB, the bank reports, is "backed by the state-owned KfW development bank." Says the FT: "By the summer of 2007, after losing almost its entire $150m investment in the CDO set up by Goldman, IKB had failed. When IKB's exposure came to light it was a hotly political issue in Germany: KfW was forced to bail it out."
In other words, the money that enriched John Paulson as part of the billion dollar "greatest trade ever" ultimately came out of the pockets of British and German taxpayers.
I've defended Mr. Paulson against accusations that he is "parasitical," and doubtless his bearishness about the housing market was valuable insight that, under capitalism, deserves to be rewarded. Still, the fact that it was taxpayers that paid the bill in the end for enriching Mr. Paulson makes my Reverse Robin-Hood antennae quiver.