Tilden Park Capital Management co-founder and CIO Joshua Birnbaum possesses the classic traits of a great trader: discipline, patience and intestinal fortitude, as well as the ability to see the big picture and think on his feet. All were on display the morning of April 27, 2010, when Birnbaum and three other Goldman Sachs Group executives appeared before a U.S. Senate subcommittee to testify on their firm’s role in the 2008 financial crisis.

“It was political theater,” says Birnbaum, 41, who as co-head of Goldman’s structured products group had generated $3.7 billion for the bank in 2007 by shorting the subprime mortgage market. During the five-and-a-half-hour hearing, the four executives came under repeated attack as senators questioned why Goldman sold subprime securities to investors at the same time that it was shorting them. Birnbaum calmly defended his actions, describing the factors that led him to turn negative on the subprime market in late 2006, the short positions his group put on and the instructions by senior management to reduce those positions in the spring and summer of 2007.

“It was frustrating to us that the tenor of our holding period wasn’t commensurate with the opportunity,” explains Birnbaum, who says Goldman could have made two to three times what it did if management had kept the short positions. “Nothing against our managers at the time — Goldman is a bank, it’s not a hedge fund, and they were doing their jobs — but we realized that this was not necessarily the right platform for us.”

Birnbaum left Goldman in April 2008, after more than 14 years with the bank. He was followed by Jeremy Primer, a Goldman research strategist who had developed computer models to assess the likelihood that the mortgages underlying the securities the firm traded would be paid off early. By the second half of 2006, Primer and his team at Goldman had built a model to analyze options on the newly created Asset-Backed Securities Index (ABX), which tracked the value of subprime mortgages. That model tipped off Birnbaum that the subprime market was severely mispriced, confirming his assessment of the sector’s rapidly deteriorating fundamentals. “What I saw in Josh was that he was not just a trader but a builder of businesses,” says Primer, 49, Tilden’s chief risk officer and head of research, who has a master’s in math from Harvard University. “So I left Goldman to participate in the growth of a new firm.”