If you wanted a reason why John Paulson made billions from the mortgage bubble and his former employer went out of business, the non-hedge-fund character of Bear’s internal hedge funds came close to supplying it.
Hold on though. John Paulson and a few others (see The Big Short for an entertaining story on this subject) made a killing by shorting mortgages. But it was a zero sum wager, meaning whoever was on the other side of that bet had to pay him. In this case it was the big banks who took the other side. So if this bet had never been made in the first place would so many banks have gone under? Certainly they would have been hit by the mortgages unraveling but they wouldn't have owed billions.
