Why Toxic Debt Looks a Lot Less Toxic

Goldman Sachs and hedge funds are buying risky mortgages again

Some of the same investors who made big profits betting against mortgage bonds before the 2007 housing bust have started snapping up the toxic assets. Hedge fund manager Kyle Bass, who made $500 million when subprime debt cratered, is raising a fund to buy them. He’s joining John Paulson, who made $15 billion in 2007 thanks to the housing bust. Goldman Sachs Group has bought the bonds this year. Remarkably, so has American International Group —the insurer that had to be rescued by the U.S. government in 2008 after its wagers on risky mortgages went bad.

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