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When one deals in stocks one must understand you are at risk of a loss.

Precisely. Also, ACA and the German Bank had their own financial analysts who looked into this trade. I for the life of me can't see where Goldman went wrong here. These people who were on the losing side of the trade were not widows or orphans or ordinary men on the streets. They KNEW the risks of the trade.

Granted, John Paulson selected the securities and bet that these were going to go down eventually because he realized that a housing bubble was in the offing, but he was also make a bet in selecting these securities. If he had bet wrong, he would have lost. Also, Wall Street Journal reports that ACA and the German Bank LOOKED into the securities that comprised the CDO and accepted the long side of the trade. So, they knew the risk and decided to take it.