Swiss negotiation technique consists of hitting hard on some points, and then soothing the counterparty's feelings by giving in on some items you can let go.

Goldman Sachs is now being hit hard by the SEC, but funnily enough, the rescue package offered to Goldman was given before the hammer.

It is interesting to note, however, that the rescue package with which traders made billions was given by the Treasury as well as the Fed, whereas the SEC is using the hammer. Does it mean that SEC's soothing balm still has to come?

Just read 'The Big Short', from which an excerpt is given in Vanity Fair's website, amazing how the amateurism of these guys has been allowed. It is like taking a third zone football team and dropping them at the World Cup, including referees whistling in their favor to make sure they pass the first round. What for? Money for sure, in Italy they call it bribery, not sure they understand what it is in the US.

Now that Goldman is getting hammered, it is too late to short its stock, unless you believe that the worst has yet to come. However, what is interesting to look at, is who played the same game as Goldman. Who made synthetic CDOs and approached Hedge Funds to act as sub-prime mortgage owners just to feed the beast? Investors were so hungry of CDOs that there were not enough mortgage takers to feed the investors. Therefore, Deutsche Bank turned to hedge fund managers who were betting against the subprime market to act like mortgage owners.

If you read between the lines, there is no underlying economic reality, just a deception game a.k.a less than-zero-sum-game. A CDO has an underlying economic reality, even if it is subprime with teaser rates, there is a tangible collateral. With a synthetic CDO, there is nothing, just a hedge fund at the other side betting against you. If, by investing in several vehicles through your pension fund and mutual funds you end up with investments on both ends, you will end up loosing money in all cases due to the exorbitant fees taken up by the banks acting as brokers in between.

Not only that, you might end up investing in a CDO with no underlying economic reality, just feeding the hedge fund, without knowing it. I hope Deutsche Bank disclosed the information properly, coz the shorts are back.