The article asserts that Magnetar was net short on the CDOs, although the This American Life episode makes that more clear than the linked article does. They c

The article asserts that Magnetar was net short on the CDOs, although the This American Life episode makes that more clear than the linked article does. They can't prove that Magnetar was net short, because that information isn't pubically available. But their evidence was that Magentar was pressuring the banks who were creating the CDOs into building them out of unusually risky assets. They have emails from a deal that fell apart because the bank refused to bundle in the assets that Magnetar wanted. > Did they profit from the misery of others by selling short? Then they had to be net sellers, which decreased prices and made the bubble smaller. Or did they needlessly fuel a speculative bubble? In that case, they had to be net buyers, which would make them net losers. The thing is, Magnetar was only buying the equity position of the CDO. They were then buying insurance against the higher tranches failing. They were sponsoring billion-dollar CDOs with a few million dollar investments in the lowest tranche. They were then buying insurance against the failure of the much larger upper tranches. Without them buying the equity, the CDO wouldn't have been created. The argument is that without Magenatar, the CDOs wouldn't have come into existence (because they wouldn't have had a sponsor willing to buy the equity tranche). Magnetar wanted the CDO to fail as evidenced by its pressure of the banks to include rotten assets. So my analogy stands, they insisted on the construction of a dangerous house so they could collect the insurance.