Do you know about “Synthetic CDOs”? I am not talking about the now familiar plain vanilla piece of crap CDO that has devastated our financial system. Nope - as complex as they originally sounded - those CDOs were simple by comparison because even though they were backed by crappy mortgages, at least they were backed by some kind of real asset. Synthetic CDO’s are much scarier to me because these are CDOs of CDSs. As I have mentioned in the past, I believe the CDS market poses a significant threat to global financial stability. Wrapping a portfolio of Credit Default Swaps into a CDO is over the top. On Friday, Moody’s downgraded 16 of these Synthetic CDOs. When the original subprime mess started, a lot of efforts were made to create lowball estimates of the size of these CDOs. So how big is the Synthetic CDO market - I am guessing it’s between $1 to $2 trillion. If you want to learn more about these timebombs, here is an old (but good) explanation.