5 Top Investors Who Profited From the Global Financial Crisis

Search Fintrev

Search our guides, reviews and glossary.

The single largest profit tied to the 2008 collapse among the best-known names belongs to John Paulson, whose bet against the U.S. housing market earned his firm, Paulson & Co., an estimated $20 billion. He is one of five figures whose crisis-era decisions paid off. The other four are Warren Buffett, who lent money to struggling blue-chip companies on very favorable terms; Jamie Dimon, who bought two failed financial institutions cheaply for JPMorgan Chase; Ben Bernanke, whose Federal Reserve ended up earning large profits on its rescue operations; and Carl Icahn, who bought distressed Las Vegas real estate at a fraction of its cost.

Understanding the Global Financial Crisis

The financial crisis of 2007 to 2009 was the most severe global financial shock since the stock market crash of 1929. It grew out of years of cheap credit and loose lending standards that inflated a U.S. housing bubble. When the subprime mortgage market collapsed in 2007, losses spread through banks, insurers and investment funds that held mortgage-linked securities, and then through the wider economy.

Several major institutions failed or had to be rescued, the most dramatic being the bankruptcy of Lehman Brothers in September 2008. The International Monetary Fund estimated global bank writedowns and loan-loss provisions of $2.3 trillion for 2007 to 2010, covering residential, commercial, corporate and other exposures. Many investors saw their portfolios fall by as much as 30%, and fear of further losses drove a wave of selling that pushed prices lower still. The Great Recession that followed cost many people their jobs, savings and homes.

That forced selling is what created the opportunity. Buyers who did not need to sell, and who had money to deploy, could acquire stakes in sound businesses and assets at prices far below their long-term value.

1. Warren Buffett: Getting Paid to Provide Liquidity

In October 2008, at the height of the panic, Warren Buffett wrote an op-ed in The New York Times titled “Buy American. I Am.” He explained that he was buying U.S. stocks for his personal account while prices were collapsing. The move reflected one of his best-known maxims: be “fearful when others are greedy, and greedy when others are fearful.”

His larger crisis profits, however, came through Berkshire Hathaway rather than his own account, and they were structured deals rather than simple stock purchases. Companies that needed capital urgently, and that could not easily raise it in frozen markets, agreed to terms that heavily favored Berkshire.

Goldman Sachs. In 2008, Berkshire bought $5 billion of perpetual preferred shares in Goldman Sachs. The shares paid a 10% dividend, and the agreement also gave Berkshire warrants to buy Goldman common stock. Goldman had the right to redeem the preferred shares at a 10% premium, which it did in 2011. On those stated terms, the dividend works out to $500 million a year, and redemption at a 10% premium means Goldman paid $5.5 billion to retire the $5 billion investment. The warrants were a separate source of potential gain on top of that.

General Electric. Berkshire made a similar deal with GE, buying $3 billion in perpetual preferred stock with a 10% dividend. GE could redeem the stock after three years at a 10% premium. Using the same arithmetic, that is $300 million a year in dividends and a $3.3 billion redemption price.

Swiss Re and Dow Chemical. Berkshire also bought billions of dollars of convertible preferred shares in the reinsurer Swiss Re and in Dow Chemical. Like Goldman and GE, both needed liquidity to get through the crisis.

The pattern is consistent: Berkshire acted as a lender of last resort to large, fundamentally viable companies and charged for it. It earned billions from these investments, and the companies received capital they needed when few others were offering it.

2. John Paulson: The Biggest Bet Against Housing

Hedge fund manager John Paulson became famous for predicting the collapse of the U.S. housing market and positioning his funds to profit from it. He did this mainly by buying credit protection on subprime mortgage securities, a position that gained value as homeowners defaulted and those securities lost value. When the market broke, the bet paid off spectacularly, earning Paulson & Co. an estimated $20 billion during the crisis, the largest single figure among the five investors here.

Paulson did not stay bearish. In 2008, he began repositioning for a recovery, and in 2009 he built a multibillion-dollar stake in Bank of America along with roughly two million shares of Goldman Sachs. He also invested heavily in Citigroup, JPMorgan Chase and several other financial institutions, and made a large bet on gold.

His overall hedge fund returns in 2009 were solid, and his bank holdings produced large gains. The reputation he built during the crisis also helped him attract billions of dollars in new client assets, which generated substantial management fees.

3. Jamie Dimon: Buying Rivals at Distressed Prices

Jamie Dimon, chairman and CEO of JPMorgan Chase, profited from the crisis on behalf of his bank. JPMorgan entered the crisis with a comparatively strong balance sheet, and Dimon used that strength to absorb two institutions that had been ruined by heavy exposure to the U.S. housing market.

Bear Stearns. In March 2008, JPMorgan agreed to acquire the investment bank Bear Stearns in a deal with an implied value of about $10 per share. The merger was completed on May 30, 2008.

Washington Mutual. On September 25, 2008, JPMorgan acquired Washington Mutual Bank’s banking operations from the Federal Deposit Insurance Corporation (FDIC) for $1.9 billion. The purchase covered the bank’s operations, not the parent holding company. The price was a small fraction of the $11.91 billion in fair-value net assets that JPMorgan acquired.

These deals expanded JPMorgan’s footprint in investment banking and retail deposits at prices that would have been impossible in normal markets. From its March 2009 low, JPMorgan’s stock more than tripled over the following 10 years, rewarding shareholders and making Dimon, a significant holder of the bank’s stock, considerably wealthier.

4. Ben Bernanke: The Fed’s Profitable Rescue

Ben Bernanke was not an investor in the usual sense. As chair of the Federal Reserve, the U.S. central bank, he led its emergency response to the crisis. The Fed’s interventions were intended to prevent a collapse of the U.S. and global financial systems, but they also turned out to be profitable.

To absorb the shock, the Fed expanded its balance sheet to roughly three times its estimated 2007 size of about $800 billion. It bought mortgage-backed securities and government debt on a large scale and created special vehicles, known as the Maiden Lane facilities, to hold assets connected to the rescues of Bear Stearns and the insurer AIG.

Those holdings produced income. The Fed’s profits reached $82 billion in 2010, including:

• About $7.3 billion from the Maiden Lane vehicles tied to Bear Stearns and AIG
• About $45 billion in returns on roughly $1 trillion of mortgage-backed security purchases
• About $26 billion from holding government debt

Because the Fed sends most of its profits to the U.S. Treasury, the beneficiaries here were ultimately taxpayers rather than any individual. Bernanke belongs on the list because his decisions, made under great uncertainty, turned assets that private investors were dumping into a source of public revenue.

5. Carl Icahn: Patience With Distressed Real Estate

Carl Icahn built his reputation on buying distressed companies and assets when others want out, and he has a particular history with casino and gaming properties. Before the crisis, he had acquired three Las Vegas gaming properties during difficult periods for their owners. He later sold them as part of a four-property portfolio once industry conditions improved. Icahn agreed to the sale for $1.3 billion in 2007; it closed on February 20, 2008, for $1.2 billion and produced a return of more than 300%. That timing meant he sold just before the worst of the crisis hit Las Vegas.

He then went shopping again. During the downturn, Icahn acquired the bankrupt, unfinished Fontainebleau resort in Las Vegas for about $155 million, roughly 4% of the property’s estimated construction cost. In 2017, he sold it, still unfinished, for nearly $600 million to two investment firms, close to four times what he had paid.

Who Benefits From a Global Financial Crisis?

Read together, the five cases show the main ways money was made from the 2008 collapse:

1. Short sellers who anticipated the crash, like Paulson, profited directly from falling asset values.
2. Liquidity providers with spare capital, like Berkshire Hathaway, set favorable terms for companies that needed cash quickly.
3. Acquirers with strong balance sheets, like JPMorgan, bought failing competitors or their assets at steep discounts, sometimes directly from regulators.
4. Distressed-asset buyers, like Icahn, bought property and businesses from bankrupt owners and waited for recovery.
5. Public institutions, like the Fed, earned income on assets bought during the rescue once markets stabilized.

The common requirement was the ability to act and then hold. Every strategy except Paulson’s short depended on markets eventually recovering, and even Paulson’s bet required him to keep the position long enough for the housing market to break. Forced sellers, by contrast, locked in their losses at the bottom. Investors who bought broad market exposure near the lows also benefited as the S&P 500 recovered.

The Bottom Line

The investors who profited most from the global financial crisis stayed calm while markets panicked and had the resources to act on their conviction. Paulson’s housing short produced the largest figure, but Buffett, Dimon, Bernanke and Icahn showed that lending, acquiring and buying at the bottom could be just as rewarding once conditions returned to normal.