It was the fall of 2007, financial markets were collapsing, and Wall Street firms were losing massive amounts of money, as if they were trying to give back a decade's worth of profits in a few brutal months. An investor named John Paulson somehow was scoring huge profits. His winnings were so enormous they seemed unreal, even cartoonish. His firm, Paulson & Co., would make $15 billion in 2007.

Mr. Paulson's personal cut would amount to nearly $4 billion, or more than $10 million a day. That was more than the 2007 earnings...