Could someone break down the mechanics of a synthetic CDO? In simple terms…
Oh, you mean Schweser’s one pager doesn’t help 
There’s a bunch of threads that explain them, just run a quick search.
Long story short. Synthetic CDO is written with respect to a reference asset, with the goal that the market participants can track the risk of the asset without actually involved with the ownership of the asset. Synthetic CDO has two tranches: senior and junior. Only the junior tranche requires funding and it acts as the support tranche for the senior tranche. The senior tranche is written with respect to a highly secured asset (usually A3 rating). The writer of the synthetic CDO would also sell a CDS on the senior tranche’s asset, and use the proceeds to fund the junior tranche.
the same kind of idiot idea that got us into this mess… im amazed this idiocy is in the curriculum, without any reference to current market conditions…