As you might have caught in the Friday morning news, the SEC is going after Goldman Sachs for fraud. The fraud in question was both lucrative and dim witted, the sort of gambit you'd hear from a degenerate gambler.

Here's the scheme. Step 1: Goldman Sachs (and other banks, not under prosecution right now), created mortgage-backed investments to be sold to investors, making sure to fill these conglomerations with lots of terrible mortgages—certain to fail. Step 2: Despite engineering these investments to fail, the bank sold them as top flight to their clients and other suckers. Step 3: The bank took out a bet that the investment (that they created, and sold to others as good as gold) would fail. Step 4: Let it fail. Step 5: Collect the bet payout.

As you might suspect, somewhere around step two fraud was committed. Who payed off those bets? The big sucker at the end of all this was AIG. The US taxpayer is, right now, picking up the tab of this mess.

The idea behind the fraud wasn't even original; Goldman Sachs ripped off a gambit by a then obscure, now notorious, hedge fund called Mangetar—now eponymous for this sort of scheme, the Magnetar trade.
From Propublica's exemplary reporting on the subject (a must read if you wish to understand):

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations — CDOs. If housing prices kept rising, this would provide a solid return for many years. But that's not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs.

Hell, (as pointed out on This American Life) this whole scheme is basically a ripoff of the plot of The Producers. Perhaps Mel Brooks should've earned those billions:
Bet Against the American Dream from Alexander Hotz on Vimeo.

And, this is (one reason) why the election mattered. The one governmental institution that could've—should've—stopped this whole gambit was the SEC. Under Bush—and certainly under a McCain-Palin administration—nobody had any fear of going to jail for this. Under the Obama admin, this shit isn't flying anymore. Federal prison is one hell of an answer to moral hazard.