A few months ago I had dinner with an old friend who told me an amazing story.

Two years before, a nice guy with no experience at all in real estate had come to him and said that there was a fortune to be made betting against the US housing market. This fellow hoped to raise money for a hedge fund whose sole purpose was to do this, by shorting the subprime mortgage market. He asked my friend to invest with him but my friend turned him down. Now my friend felt foolish.

"It all happened exactly like he said it would happen," he said. "In every single detail."

The hedge fund creator's name was John Paulson. And - as Bloomberg News's Jenny Strasburg and Anthony Effinger and the Wall Street Journal's Gregory Zuckerman laid out recently - by making between $3 billion and $4 billion for himself in 2007, he appears to have set a Wall Street record.

In the long history of moneymaking, no one has ever made so much so fast. As the Journal story also showed, Paulson's instincts now tell him to lay low and avoid calling attention to his fantastic triumph over his fellow Wall Street man.

"He is reluctant to celebrate, while housing causes others pain," the Journal explained. To which Paulson added, "We think a lot of homeowners have been victimized." And, to prove his point, he donated $15 million to something called the Center for Responsible Lending, an outfit that works on behalf of homeowners facing foreclosure.

It's possible, just, to take Paulson at face value. True, two years ago he saw what was happening in the US housing market, and to the American homeowner, and thought of it mainly as a chance to short. But, perhaps, even then he was simply trying to wage financial war on behalf of ordinary folks, by depressing the value of their securitized debts.

For all I know, Paulson can now scarcely drag himself out of bed in the morning to reply to his e-mails, or haul himself to the office in pursuit of a measly few hundred million more, or indeed, do anything but ponder the sad plight of the American homeowner.

On the other hand, he may have seen just as clearly the future politics and public-relations implications of the US housing collapse as he did the event itself, and is now positioning himself accordingly. For not since Michael Milken bootstrapped hostile raiders of public companies has Wall Street been so directly implicated in the misery of the little guy.

The fallout has just begun.

And right now the only thing missing from the subprime-mortgage market collapse is a truly satisfying villain. All sorts of people are being sued, but most of them lost money, just like the victims. The first rule of financial villainy is that the villain must have made off with a pile of loot.

Ordinarily, some big Wall Street firm could be dragged in to play the role of Evil Mastermind. But, with the exception of Goldman Sachs Group Inc, the people who work at big Wall Street firms don't seem smart enough to have masterminded anything. Enter Paulson - and, no doubt, other shrewd short sellers of whom we'll soon hear.

He, and they, may face a real social risk: Having made their fortune they must now subject it to public inspection. Articles will be written, hearings held, and lawsuits filed - and all of these will be drawn inexorably toward the people who profited from the misery of others. For them, life is about to become more complicated.

Michael Lewis is a Bloomberg News columnist. The opinions expressed are his own.

(China Daily 01/29/2008 page16)