European Debt Crisis Is John Paulson's Latest Chance To Make A Fortune

John Paulson, the hedge fund manager who made billions betting against the U.S. mortgage market in 2007, has found something new to bet against.

Paulson told investors on a recent conference call that he is betting against European sovereign debt, citing fears about the over-dependence of Spanish banks on support from the European Central Bank, according to Bloomberg News.

Paulson told investors that he is also buying credit-default swaps on European debt, according to Bloomberg, which act like insurance policies that pay out if borrowers fail to pay their bonds.

One question for Paulson's clients could be the bet's timing: Though Spain has recently moved to the center of the European debt crisis, replacing Greece, the crisis has been going on for years, and prices for insurance policies on European debt, including Spanish government bonds, have soared during that time. Some might argue that the easy money in Europe has already been made.

Paulson rose to prominence and exorbitant wealth after making billions of dollars betting against the U.S. market for subprime mortgages, while most of Wall Street was still in the midst of a feeding frenzy over mortgage bonds.

Since then, not all of Paulson's investments have been so lucrative. Last year, the fund that Bloomberg News describes as his largest, Advantage Plus, lost 47 percent of its value, according to Bloomberg. At the time, Paulson attributed the losses to a premature bet on the U.S. economic recovery, telling investors during a conference call, "We made a mistake," according to The New York Times. The Advantage Fund lost 5.45 percent in March and was off by 2.23 percent for the first quarter of 2012, according to HFMWeek.

Meanwhile, Paulson's Gold Fund was down 13 percent in March and 6.5 percent for the year, according to a Bloomberg report.

Paulson has also been sued over his investment strategies. In late February, former federal prosecutor Hugh F. Culverhouse took Paulson to federal court in southern Florida, alleging in a civil lawsuit that Paulson failed to adequately vet an investment in Sino-Forest, a Chinese company that harvests trees for commercial use. That investment lost $500 million in 2011, according to The Wall Street Journal.