A great read on the Paulson scheme from Cafe Hayek:
John Paulson expected housing prices to go down. The ABACUS vehicle at the heart of the transaction allowed him to profit when they did go down. Who was on the other side of the transaction? Who lost the $900 million that Paulson collected?
Goldman had trouble selling the long side of the deal. Paulson was able to bet about a billion dollars that the housing market would go down by buying insurance against parts of ABACUS, insurance Paulson would collect if the housing market and therefore the underlying mortgages and therefore the underlying bonds of ABACUS plummeted, which they ultimately did.
Goldman told buyers of the package that ACA Management had chosen those underlying bonds. ACA Capital, another part of ACA, offered the insurance against losses. But ACA was only A-rated. (And ultimately grossly undercapitalized to keep all their promises.) So Goldman (I think, or maybe it was ACA) paid ABN Amro, a Dutch bank, to stand behind ACA’s insurance. For that promise, ABN Amro received $7 million. Alas, when the housing market went south, they ended up having to pay $841 million to Goldman and then John Paulson.
Roberts concludes that, because of the government bailouts of foreign banks, the "ultimate guarantors of Paulson's play were the taxpayers of Germany and the UK."