The SEC charges against Goldman Sachs are fascinating reading. On the one hand, the Vampire Squid is not likely to be a recipient of much sympathy. But what comes out from the SEC's description is the extent to which people inside Goldman Sachs (and Paulson & Co.) knew that the real estate finance roof was about to cave in -- but couldn't believe that there were so many people who didn't see it --
For example, portions of an email in French and English sent by Tourre [a VP at Goldman Sachs] to a friend on January 23, 2007 stated, in English translation where applicable: “More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab[rice Tourre]…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [sic]!!!” Similarly, an email on February 11, 2007 to Tourre from the head of the GS&Co structured product correlation trading desk stated in part, “the cdo biz is dead we don’t have a lot of time left.”
And note: that's early 2007. So this business had gone sour in 2006. Incidentally, the SEC complaint singles out 2 banks caught on the wrong side of the disputed transaction: German bank IKB, and Dutch bank ABN Amro, which was soon to feature in the worst takeover in history.