Who are the muppets that Wall Street takes advantage of?

The muppets that Wall Street takes advantage of are any investors who buy opaque structured finance products or the stocks and bonds of banks with disclosure practices that make them resemble 'black boxes'.

The investor is a muppet because they are blindly betting as oppose to investing which requires the ability to assess what you are buying and know what you own.

As described in a Guardian article discussing muppets for structured products,

So who were the muppets then? All interviewees said that the term is common on investment banking desks and trading floors. A former salesman with a major bank said: "If one client always calls in with an order 10 minutes after markets close, you will call him a muppet. It's London slang for idiot." 

But there seems to be a second category of muppets, and they are found in a second area in equity derivatives, called structured products. These are complex, bespoke contracts for individual clients designed by "structurers". 

One insider likened them to holiday packages: "You can shop around yourself for the best deals for a hotel, ticket, tour, etcetera. But just as most tourists leave that to a specialist travel agency, most clients will leave it to their bank to find and put together the right combination of financial instruments." 

And this, interviewees agreed, is where mischief, or worse, is possible. 

In the words of one such former structurer: "There are very sophisticated parties out there. But there are also smaller players who basically have no idea what they're doing. Some small savings bank perhaps, or some municipality. What got to me after a while is how I'd be lying in the faces of these less sophisticated parties. And I'd be thinking, wow, this is my parents' pension money down the drain. Some guy working for a small bank in Belgium would be called 'muppet', that's very likely." 

The former salesman concurred: "It's an open secret that there is this group of less sophisticated institutional investors, mainly from southern Europe, who would buy things they didn't understand." 

Interviewees stressed that all banks are ripping these players off, not just Goldman Sachs. And they have been doing this for years.

Of course, this leaves out of the discussion all of the Eurozone banks that purchased tranches of US sub-prime mortgage backed securities or CDOs.