Here's what I understand (please feel free to correct me on anything if I'm wrong): i.) Goldman Sachs created MBSs (mortgage backed securities) with sub-prime mortgages that they bought. They essentially bought up a ton of these mortgages and packaged them all together into a giant securities that they sold shares of to clients. On top of the sales fees they might have gotten, they also got a steady stream of small income from these mortgages from the monthly mortgage payments themselves in whatever remaining shares they hadn't sold. ii.) However, the real money-maker came from betting AGAINST their OWN created MBSs. Here, they created something called synthetic CDOs (collateralized debt obligations), which were just bets against their own MBSs. If the MBSs failed (i.e., the sub-prime mortgage holders failed to make their payments), then Goldman would stand to gain from that loss. Goldman sold what they knew were bad MBSs to clients, while betting against those same MBSs. It was a win-win guarantee. If Goldman's MBSs held up financially, they'd gain a small profit (as would their clients who bought shares in them, due to the monthly mortgage payment profits). If the MBSs failed, then they'd gain a huge profit from their CDOs. But, critics say the KNEW the MBSs were bad (which Goldman denies). QUESTION: Assuming my understanding of things is correct, who paid Goldman on their synthetic CDO gains? When they bet against their own created MBSs, who was taking the other side of the bet? And why was the amount so high (their profits from the CDOs, I mean)?