An article earlier this month in news outlet ProPublica was the latest to assert that Magnetar designed deals builttofail that caused cascading losses for investors on the other side of the trades.
The firms that we now consider to big tofail have been built in large part through the acquisition of the human talent and customer base of the multitudes of smaller firms they have gobbled up over the past few decades.
Sanford Weill built Citi into a too-big-to-fail institution by steamrolling over the last remnants of the Glass-Steagall Act that previously had separated the deposits-and-loans business from riskier activities like investment banking and underwriting stocks.
They even built a tool, dubbed Chaos Monkey, that causes random things tofail in their infrastructure so they can learn to avoid outages like this one.
In so doing, they sometimes failto build appropriate controls and leave existing managers overstretched: NatWest has built a sizeable derivatives business out of nothing in a handful of years.