AIG was the nexus here.  They were fools taking all bets with no capacity to take a hit.  But if their largest counterparties only had $10 billion ish of exposure (much of it already margined), how much more can be out there?

now on the CDO's there's still big problems if real estate continues to melt down.  But from what I see, real estate is getting cleared at about 60 cts on the dollar for the most part (some real disaster auctions in the central valley of CA).  So there's a floor under them much higher than the trading price of the paper.  Some bright sparks will make a killing off of the big banks puking this paper.

As for how to prevent this, I've no great idea other than requiring huge margining such that no one player can get too big to fail.  Your system has elements of the system that just failed us.  AIG was AAA with open credit all around.  Until suddenly they weren't and didn't.

I've heard some interesting tales of how the major oilcos simply shut down all credit with the wall streeters last fall.  Nearly brought physical trade to a halt.  Ugly.