The way that Goldman Sachs got itself in front of the SEC, charged with fraud, is eerily similar to another deal that Pro Publica and NPR journalists detailed recently in their story on Magnetar, a CDO deal done to exploit the height of the housing bubble at the behest of a hedge fund that designed the CDO expressly to fail. Like arsonists buying insurance on a house they wanted to burn, the hedge fund bought Credit Default Swaps worth far more than their investment— looking not to make money on the mortgage security, but on the insurance when it went under. The story has played on a fascinating episode of NPR's This American Life and now is the subject of a Bloggingheads.tv dialogue. Read, watch and listen to understand how Wall Street gamed the bubble as you bought homes they knew would decline in value.
Hey, the story even has a song...sing along, let's, "Bet Against the American Dream."