Now that I've read Michael Lewis' The Big Short, read the recipe for a CDO short done by Dr. Mike Burry that he graciously left on his now closed money management firm's website, I think I have an idea about the Goldman Sachs case that is in the news. According to the individuals in Lewis' book, Goldman hadn't thought of shorting their CDOs and thought that these buyers were the dumb money until they figured out where the smart money was.
Another interesting aspect to this whole debacle is that CDO exist, on some level, because the army of originators on the street (such as me) couldn't provide enough debt to consumers to supply the machine's need for ABS (Asset Backed Securities), so they came up with CDOs, and then synthetic CDOs.
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