In the immediate aftermath, the conventional wisdom was that Wall Street had simply lost its head. It was terrible, to be sure, but on some level understandable: Dutch tulips, the South Sea bubble, that sort of thing.
In recent months, though, something more troubling has begun to emerge. In December, Gretchen Morgenson and Louise Story of The New York Times exposed the role that some firms, including Goldman Sachs and Deutsche Bank, played in putting together investment structures ”” synthetic C.D.O.’s, they were called ”” that were primed to blow up. They did so, reportedly, because some savvy investors wanted to go short the subprime market.
On Friday, the Securities and Exchange Commission dropped the hammer, charging Goldman Sachs with securities fraud for its purported failure to disclose that the bonds that were the basis for one particular synthetic C.D.O. had been chosen by none other than John Paulson, the billionaire hedge fund investor, who was shorting them.
Oh, and one other thing is starting to become clear: synthetic C.D.O.’s made the crisis worse than it would otherwise have been.