Goldman Sachs Is Evil

This is my understanding, based on this and this. Goldman Sachs, like every other bank, bundled together all kinds of terrible mortgages together into securities. Once Goldman realized that the market was going to tank, it asked John A. Paulson, a prominent hedge fund manager who recognized the housing bubble, to pick which securities he thought were most likely to go first. Goldman then bundled those securities into a new stock called "Abacus." This means that Goldman was selling its customers a product that it knew was going to fail.

At the same time that Goldman was selling Abacus, it was preparing to make money off of Abacus' failure. Goldman bought a fancy-dancy insurance on the Abacus stocks, which are called credit default swaps, from AIG. The swaps, sold by insurance companies like AIG, provide that a certain payment be made if a stock drops below a certain value.

When Abacus failed, as Goldman knew it would, Goldman went to collect the billions it had coming back to it on the swaps. AIG didn't have the money, Goldman didn't care. AIG had to get the money from somewhere or else risk failing, which it was too big to do. All of Wall Street counts on AIG as a safety net, and losing that meant the collapse of the system. So, the Federal Reserve has no choice but to step in and grant a $182 billion bailout for AIG, making sure Goldman makes its money. By the way, the head of the Federal Reserve, Henry Paulson, used to be the head of Goldman Sachs. This didn't motivate the bailout, but it might have helped prevent requiring any oversight or putting through new regulations.

Maybe Goldman Sachs isn't evil. It's not that they knew everything that would happen, just that they hedged their investments wisely and, when the market collapsed, had positioned themselves to make out well. Or, they're just evil and completely manipulated the system.