Excerpt from Bad Paper by Jake Halpern, plus links to reviews, author biography & more

There is, however, another way to make money off older paper—namely buying paper that has been bought and sold repeatedly, but has not been collected on efficiently and thus wrung dry. This is what Aaron wanted to do. He told his investors that his goal, in significant part, was to buy "grungy" paper that had been around the block but retained its value. In short, he wanted to buy paper that was not as "beaten up" as it looked. After all, Aaron reasoned, a smart buyer could capitalize on just how difficult it was to price debt accurately. A dizzying array of variables affect a portfolio of debt's true potential—including the age of the debt, how many agencies have worked it, the size of the balances, the types of credit card involved, the regions where its debtors live, the current economic climate, and many other factors. There is no single market or venue—like the NASDAQ or the New York Stock Exchange—where this kind of debt is sold. This creates a marketplace that is inherently inefficient, which makes it hugely enticing to many investors. Warren Buffett once famously said, "I'd be a bum on the street with a tin cup if the markets were efficient."

One of Aaron's investors told me that he was won over by the possibility that Aaron had found a wonderfully inefficient little market. He liked the idea that most deals were made through intermediaries—and that there was no easy way to know what the debt was really worth. You couldn't simply check on the Internet or the business section of the newspaper. "There is the potential to buy bad paper, but there is also the potential—if you are smart or savvy enough—that you should be able to exploit this shortage of information," the investor told me.

With $14 million from his investors all lined up, Aaron was poised for success. Overnight, he had gone from being the owner of a small call center, in which he had to deal with the likes of Matt the Midget, to once again being a player in the high-powered world of finance. And this time, in contrast with his stints working at big banks, he was in control of his own destiny. Aaron's next order of business was to find a few good collection agencies to work his debt.

Aaron wanted to avoid hiring the enormous mega-agencies, with their endless rows of cubicles, stretching on forever and fading off into the dreary, monochromatic horizon. In Aaron's view, these agencies had more paper than they knew what to do with. Such places often scored each and every debtor—by running a series of credit checks—and then worked only the top-scoring accounts, leaving the rest untouched. Aaron wanted smaller, hungrier shops, where he was the sole provider of paper. "This way," explained Aaron, "they have to do well for me or they don't make payroll." Such an agency might eventually go out of business, he reasoned, because it would spend too much time on each account; but while it was up and running, it would make him money. He also wanted a shop that collected aggressively—not one that was "threatening to break legs" but a place where collectors were willing to test the limits of what was allowed under the Fair Debt Collection Practices Act of 1977. This law forbids debt collectors from engaging in abusive, deceptive, or unfair practices and it places certain restrictions on how and when they can call a debtor.

Aaron knew precisely what he was looking for, and in early 2009, he found a man who promised to provide it. Shafeeq, who asked only to be identified by his middle name, was the co-owner of a small, five-man shop. Shafeeq was an ambitious young black Muslim from the impoverished East Side of Buffalo—an imposing figure of a man, roughly six and a half feet tall, and weighing more than 300 pounds. Shafeeq looked the part of a bodyguard and, in addition to running his debt-collection agency, he ran his own security business on the side. Shafeeq's intimidating appearance, however, belied a more thoughtful and soft-spoken aspect. As a child, Shafeeq was such an avid reader that he churned through each page of the Encyclopedia Britannica at his parents' house, in wild anticipation of the mysteries that awaited him in the volume labeled "X."

Excerpted from Bad Paper by Jake Halpern. Copyright © 2014 by Jake Halpern. Excerpted by permission of Farrar, Straus & Giroux. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.