Banks like Goldman Sachs, Deutsche Bank, Morgan Stanley and Tricadia Inc. bundled debt, sold CDOs to clients, bet against it, and won

The disastrously performing securities is now the subject matter of scrutiny at SEC and FIRA.

Other than these 4 i-banks some hedge funds like Paulson & Co. also benefited. Losses had multiplied with more securities to bet against. Some $8 bn of these, out of $108 bn issued from '05 to '07, remain in the books of AIG, rescued by the US govt. The actual volume was much higher as synthetic CDOs and other customised trades are unregulated and not reported to any financial exchange or market.

Since the collapse, GS made big money in '07 and '08 when the mortgage market collapsed by using the ABX and creating deals known as Abacus worth $10.9 bn from '04 to '05 and Hudson Mezzanine in '06.

A footnote. Tetsuya Ishikawa, a salesman on several such deals left GS and later published a novel, "How I Caused The Credit Crunch." He says that bankers deserted their clients who had bought mortgage bonds when that market collapsed.

You can check out the following. DB drew up a new system called Pay As You Go in '05. MS established a series of CDOs named after US Presidents Buchanan and Jackson. Tricadia called them TABS from '03 to '07. Their buyers experienced heavy losses. 

The sub prime crisis that has caused so much trauma for hedge funds and i-banks has brought only good news for John Paulson. He is the manager of more than $7 billion in hedge fund money keyed to mortgage credit.

He started warning his investors back in the middle of 2006 that the frenzy to build and sell housing was a bubble about to pop. His New York-based firm, Paulson & Co., made big bets predicting the edifice would soon come crashing down. The wager paid off in the first nine months of 2007, when Paulson's Credit Opportunities funds rose an average of 340 percent.

That gain earned him an estimated $1.14 billion in performance fees for the nine months ended on Sept. 28. Fees on Paulson's other eight funds bring his total to $2.69 billion, which puts him and co-manager Paolo Pellegrini at the top of Bloomberg's ranking of best-paid hedge fund managers.

He is not related to Treasury Secretary, Henry Paulson, the former CEO of Goldman Sachs Group Inc.