Goldman star trader quits to form hedge fund

NEW YORK, April 17 (Reuters) - Josh Birnbaum, a trader who helped Goldman Sachs Group (GS.N) engineer investments and hedges in subprime mortgages that generated billions of dollars in profit, has quit to form his own hedge fund, people familiar with the situation said.

Birnbaum, a structured-products trader in Goldman's mortgage business, together with colleague Michael Swenson, pushed the investment bank to bet on a collapse in subprime mortgages and to maintain these positions late into 2007.

The trade, backed by mortgage-department head Dan Sparks and the highest level of Goldman management, helped Goldman report record profit when the banking industry overall suffered about $250 billion in debt losses and write-downs.

Goldman Sachs declined to comment on Birnbaum, who becomes the latest in a series of successful traders to strike out on their own. The move also follows dozens of other funds launched in the last year to soak up mortgages at distressed prices.

Birnbaum, Swenson and Sparks were to be paid between $5 million and $15 million each last year, according to a December Wall Street Journal story on Goldman's mortgage trades. (Reporting by Joseph A. Giannone, editing by Dave Zimmerman)