Have you ever heard of a company called Magnetar? No, me neither, but guess who made a fortune betting that Americans would default on their mortgages? A little hedge fund from Chicago named after the powerful magnetic field created in the last moments of a dying star/supernova. How perfect is that? They saw an opportunity to make money in the last moments of a dying empire.
It's quite a complex story, my understanding of it (and please read the ProPublica story linked above to get the full picture) is that Magnetar pushed bankers to include increasingly risky mortgages into CDOs. Magnetar would then sponsor the most risky portion of the CDO. The rest of the CDO would be covered by other investors - you know mutual funds, pension funds, everyday suckers like you and I. Then Magnetar would bet that the CDO sponsored would fail by purchasing "hedging instruments" called credit default swaps that covered the value of the entire CDO, even though Magnetar only had an interest in a portion of the CDO. Meaning that while the other investors in the CDOs lost their money, the people with the risky mortgages lost their homes, and the banks lost their money, Magnetar made billions (almost $6 billion).
It's the story of American ingenuity and a good old-fashioned fuck everyone approach. It's the sort of thing that made America great and exactly what is cutting short the American empire. God bless them all, but the dream is over. Ayn Rand was wrong, individualism and self-interest will not make a country great, but it will make a few selfish assholes a stack of cash. It's time to ditch the shoddy objectivist philosophy and attempt to salvage your country.
On a side note, I had the good fortune to come across the fantastic podcast, This American Life. The very first episode I heard was one called Inside Job, which lead to this posting. Give it a listen.