John Paulson, the hedge fund manager who went before Congress last week to discuss hedge fund practices, has started to buy securities backed by residential mortgages. His move marks the latest example of a famously bearish investor shifting gears to profit from depressed prices in the global credit markets. US residential mortgage securities fell in value last week after Hank Paulson, Treasury secretary, said that the federal government had decided against buying toxic assets as part of its $700bn Tarp scheme.

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