It is remarkable that Goldman was prepared to offer preferred stock to the Libyans and that chief executive Lloyd Blankfein himself was involved in discussions.

Powered by Guardian.co.ukThis article titled “Colonel we shrank your cash pile, have some stock” was written by Nils Pratley, for guardian.co.uk on Tuesday 31st May 2011 19.34 UTC

Lost a fortune on the roulette wheel? Don’t worry, if you are a big and important player, the casino will offer you the chance to recoup your losses by investing in the casino itself.

That seems to be a rough summary of the extraordinary story, as revealed by the Wall Street Journal, of how Goldman Sachs found itself in 2009 offering preferred stock to the Libyan Investment Authority, a fund controlled by Colonel Gaddafi. The Libyans lost almost .3bn (£790m) in derivative trades in 2008 conducted through Goldman; the bank, anxious to maintain a relationship with a bn-plus fund, dreamed up a series of attractive investment offers for the LIA. Preferred shares are not ordinary shares – they are more like debt. But the funniest part of the saga was this: the Libyans were so shaken by their losses they didn’t bite; instead, they questioned the solidity of Goldman itself.

This was a tale of the times, of course. Most of the world’s banks were keen to do business with the LIA, and were permitted to do so after 2004. The thumping 98% loss in high-risk derivative contracts was caused by the market turmoil of 2008.

Even so, it is remarkable that Goldman was prepared to offer preferred stock to the Libyans and that chief executive Lloyd Blankfein himself was involved in discussions. Okay, association with a 98% loss might have been considered embarrassing by Goldman. But the trades were all signed off by the LIA, insist bank insiders, and the fund was offered ways to cut its losses when the bets started to turn sour.

Other Goldman clients who have suffered trading losses might like to know more. Is this special offer still available? How much do you have to lose to qualify? Does it help if you threaten to sue?

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