He did not do any of that. The summary is inflammatory flamebait. If you click on the link, you get a WSJ article that actually contradicts the summary (welcome to New Slashdot).
The WSJ story is very clear about what Paulson did: he noticed that subprime lending was out of control, and that the standard "insurance" against bad bets (CDS) was absurdly under-priced. Note: this basically means that the Big Banks (*not* Paulson) were throwing money left and right to the subprime lenders, blind to the risks.
So he bought a lot of CDS, and when the bubble crashed, he profited massively. The End.