From BBC

Or as Rolling Stone described GS:

This is just the tip of the iceberg. Up till now regulators have avoided litigation against the banks as much of the sub prime mess was fraudulent. If they sued one it would bring down the entire banking system, as none of the banks would have clean hands. It would also destroy the rating agencies as well who rated these products as AAA rated investment grade.

i am happy to see someone is starting too see the smoke from the mirrors …

Mine were never blinkered. I knew the details of this some two years ago. Not this specific case but the whole mis-selling of AAA rated investments that were in reality junk. If Europe had sued the US banks for complete restitution it would have bankrupted the US. That was why it was not done.

The more interesting thing here is that it shows that hedge funds can be a good thing. A lot of Europe is blaming them for this whole fiasco, but the real hedge funds were warning us about the asset bubble, even when banks trying to behave like proxy hedge funds were blindly inflating it.

It's quite likely that hedge funds will be more punitively regulated than banks as a result of all this mess, which seems to be exactly the wrong way round.

I agree, but hedge funds are not big political sponsors like the banks.

Short selling also got bad press, because it lowered the value of the banks shares, and the directors bonuses were based on those share values. If they had over sold a valuable company's shares then the market would buy them and the short seller would lose money.

The hedge funds were pretty blameless as to the cause of this mess, though as you say they will probably get the blame. It was the commercial/investment banks who were clambering onto the hedge fund bandwagon and lending them excessive amounts of money to invest that cause some problems for the banks. It was these bank run hedge funds that were responsible for the demise of Bear Stearns.