[loewenskind]

The problem with synthetic CDOs is that they're over the counter. You can have more people betting against loans than actual loans and since they weren't controlled the one who was supposed to pay out [1] might not be able to.

Speaking to the gambling point, I believe it was Deutsche bank who went to the government to make sure synthetic CDOs wouldn't be classified as gambling before starting to sell them.

[1] I can't say "issuer" because these were sold around.