If you've been quietly going about your business this year, you may not have noticed the new class of kings atop of Wall Street. Pity the poor suckers who studied at Harvard Business School and worked the corporate ladder to become mere Fortune 500 CEOs. They've had to get by on single or double-digit millions, while hedge fund managers and private equity titans took home hundreds of times that amount.

If, on the other hand, you live in a working-class neighborhood in America, you may have noticed a different phenomenon: people losing their homes in a wave of foreclosures that, in some cities, rivals Hurricane Katrina in its destruction. The worst is still to come.

One class of individuals is swimming in a record ocean of cash. Another class of people is drowning in record financial failure. The two are tied to each other in a web of fraud and unrestrained greed.

In olden times – like the 1980s – if you wanted to buy a house, you borrowed money from a bank. The bank would comb through your financials to weigh your risk of default. Their profits depended on borrowers paying them back. But those were olden times, before a new tier of companies had conquered Wall Street. In recent years, there's been an explosion in hedge funds and other lightly-regulated firms that specialize in complex financial engineering. Such companies employ armies of math geeks that put NASA to shame; they've reshaped the financial landscape to make themselves the richest of the rich.

The old "originate and hold" model of mortgage lending turned into "originate and distribute." Lenders (not just banks anymore) no longer keep loans on their balance sheets, but package the majority of their loans to sell them off to investors as Collateralized Debt Obligations, or CDOs. It's called "spreading the risk," but a more accurate term would be passing the buck. Buyers of these repackaged loans get stuck holding the bag if borrowers default.

Freed from the peril of losing money when loans default, lenders pushed loans onto anyone they could. Sub-prime borrowers – people too risky to qualify for traditional mortgages – took out new mortgages and re-financed old ones by the millions. Many of them were in poor, African-American neighborhoods, where people were offered deals that seemed too good to refuse. People were targeted for their lack of financial sophistication, and their desire for a better life. Teaser loans offered low interest rates for the first years before higher rates kicked in. People were told the pain would never come because rising home values would keep adding value. Worse were the "liar loans," so called because mortgage brokers simply wrote down bogus incomes on clients' loan applications. Lenders made money from the volume of loans, not from the quality of borrowers.

Of course, fewer investors would buy such loans if they knew how rotten they were. Lenders masked the stench by pooling the loans with other, more secure loans, and bundling them as CDOs. It's like dropping hunks of rotten apples into cans of fruit cocktail. Many investors had little idea how rancid their batches were. Some had contracts that allowed them to ask for injections of quality loans when the bad ones soured, but the pool was so infested with putrid loans that lenders could not oblige. Now that firms investing in such loans are collapsing, they're calling for government bailouts.

There are neighborhoods in places like Cleveland, where a third of the houses sit empty, boarded up, or repossessed. If the devastation looks like a war zone, it's because it is. Finance has become an arms race, pitting billionaires devising new instruments of wealth accumulation against regulators whose duty is to keep them in check. The regulators are losing badly, in part because Wall Street is closer to the government's ear than to Main Street. Entire cities may be laid to waste and people's lives may lie in ruin, but there are still people much wealthier than them, inventing more ingenious ways to screw them.