There's no significant distinction (IMO) between a trade on a 3m butterfly on the JPY/USD vs. a the 3%-7% tranche of Abacus - both are derivative transactions with well-defined risk/rewards, and you do your own research and come to your own conclusions on the value of the product. Sure, one is more liquid, more transparent, etc. but that's a factor to be taken into account when buying, not a reason for complaining when MTM moves against you.

But the distinctions are also important. With a CDO, you have the ability to stuff it with bad debt, which is what banks did.

When bankers are intentionally creating debt instruments which are going to explode, then it's different from just calling a bank to get their quote.

And at that juncture we can also ask, if a situation where mortgage payout =x, but banks are aiming for 30x by betting that the owner defaults - aren't the incentives off?

Also, when the bank is shorting the instrument and doesn't disclose it... Well generally that at the very least sounds like something most people here would want to disrupt, because it's well, not what regular people consider to be fair business.

The standard cabeat emptor defense also stands because we believe in the qualified investor aspect of the equation. And right now, not most investors are qualified for it. As svdad said - most investors aren't doing their diligence, and couldn't do it even if they tried. So perhaps that needs to be fixed, or we need a stronger regulator to gate entry.

(And reaching a situation where our regulators are not powered enough to grok the derivative, is just something we want the system to move away from over time.)

Edit: above is opinion, I'm open to listening, I do have a pretty firm idea, but work actively to dislodge it. Standard boiler plate. As I said before, I'm not the most eloquent.