If the synthetic CDO (CDO news) were a person, we can only hope he or she has thick skin. The concept has been roundly trashed, especially in the wake of the SEC's (SEC news) charges against Goldman Sachs (NYSE: GS) over its ill-fated ABACUS synthetic CDO.

Some people may deem it refreshing to read a strong defense of the product. Recent commentary by a former CDO practitioner in Creditflux has done just that. One big issue is the social and economic value they offer. "The answer is that they benefited Main Street. They contributed to the pre-crisis, low risk premium environment, which reduced the cost of capital for corporate America and allowed it to create jobs." Moreover, the development of CDOs were good for investors in that they provided more tailored investment options. For dealers, "the single tranche market generated tremendous flows in both the single name and index markets, each with an opportunity to profit." Until it all blew up.

One could argue that the product concept is not at fault so much as the execution by dealers and rating agencies. At some point, the value of the material in portfolios was out of whack with reality. Perhaps it's a human failing more than a product failing. So it comes to the extent you believe in gun control.

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