Chan akya in atimes generalizes the SEC suit against Goldman.
Neat, easy, understandable explanation of what exactly Hedge funds Messrs Paulson & Co and Magnetar were doing in cahoots with I-banks to screw vanilla 'investors' in RMBS securities, primarily CDO tranches. (These investors turned out to be big institutional investors such as european and Asian central banks.)
And the hedge funds then proceeded to methodically screw the tactically brilliant wall st i-banks into the ground as well.
Good read. IMVHO of course.
link
Then there is the issue of complicity in the transactions - the subject of the SEC allegations against Goldman Sachs on Friday. The Pro Publica report on the Magnetar trade has the following gem of a paragraph:
At least nine banks helped Magnetar hatch deals. Merrill Lynch, Citigroup and UBS all did multiple deals with Magnetar. JPMorgan Chase, often lauded for having avoided the worst of the CDO craze, actually ended up doing one of the riskiest deals with Magnetar, in May 2007, nearly a year after housing prices started to decline. According to marketing material and prospectuses, the banks didn't disclose to CDO investors the role Magnetar played.
The last sentence should have a chilling effect on the management of the various banks involved - this is
precisely the same allegation that the SEC has made about Goldman Sachs.
When considered from the perspective of the various investment banks involved, it is clear that there were no "winners" here. The top five investment banks by value of deals done for Magnetar are as shown in the table below.
As luck or otherwise would have it, all five of these investment banks were adversely affected by the financial crisis in a maneuver known popularly as "eating as your own cooking". Citigroup had to be bailed out by the US government and UBS by the Swiss National Bank, while Merrill Lynch sold itself to Bank of America to stave off an impending bankruptcy. Calyon, which has recently been renamed "Credit Agricole CIB" also suffered massive losses, and Lehman Brothers of course went spectacularly bust in 2008.
I first thought twas the search for the greater fool that did these banks in as the music stopped prematurely and these big banks were left holding the can. But that's not so. The tactically brilliant bonus-lords on wall st screwed not just investor janta but their own parent banks perhaps deliberately. Read on....
In many of these banks, the existence of inter-departmental friction could have well led to the
comical situations wherein toxic deals manufactured by one side of the bank ended up in another area. Even when bankers know that deals have been "gamed" to benefit certain hedge fund clients,
it is also a good bet that internal disclosure of such practices would be minimal, not the least because the narrow interests of the bankers (being the annual bonus check) almost contradict the interests of the bank (longer-term profits and strong client relationships).
When bankers know that the deals they created are destined to blow up, they would quietly collect their bonus checks and then go to work somewhere else.
Even when they know that the deals being purchased by another part of the bank are exactly the same as the very deals that they have created to be blown up, such bankers would keep mum - indeed the perverse incentive would be to gently egg on the idiots in the Treasury department even as the investment banking group rakes in the profits and fees. 
Well, well. Poor Harvard itself got screwed by these i-bank types among its own alumni. The tactically brilliant wall street big banks also went on a vulturing spree amongst local gubmints (Jefferson country, AL anyone?) systematically ripping them off with products they could not understand but which were giving a few yrs worth of immediate benefit (shades of teaser rates and option ARMs anybody?).
OK, so how bad was this side of the trade? Take the case of one of the smarter banks on wall st today that was rumored to have evaded the crisis - JPM chase.
Of the banks that did NOT blow up subsequently, JPMorgan appears to have lost a significant portion of the deal done with Magnetar - the article claims that the bank lost $880 million of the deal it did for Magnetar on the portion it couldn't sell and left on its own books.
When a bank makes fees of $20 million, and then proceeds to lose $880 million on the deal while paying the bankers involved in putting the deal together at least $10 million for their "genius", what you have is as clear a failure of risk management as can ever be made visible.
The notion that JPMorgan, or indeed any other bank, walked on water and had superior insights into the crisis is belied by the latest details of what actually went on. {Amen}
Bottomline? Highly entertaining if it weren't so serious.
That we have an active group of investors, regulators, politicians and others waiting to organize lynch mobs to deal with the people considered most responsible for the crisis - bankers and assorted villains from the financial industry - has been clear for some time now.
...
The most important roadblock to these measures has been the hitherto well-held assumptions that all participants in the financial markets were "adults"; in other words, that since both buyers and sellers were market professionals there were really only a few true victims from the crisis.
Re the bolded portion - WRONG. Turns out it was
fraud at the epicenter of the worst fin meltdown in decades. Fraud that has thus far been woefully inadequately been investigated, prosecuted or otherwise dealt with.
" tactic. Puts India on the defensive and unable to complain about the actual terrorism from Pakistan.