I still do not get it!!.
What is meant by a Synthetic CDO short position?
(1)- Selling the security of the CDO.
(2)- selling insurance on the referenced Synthetic CDO mortgages?
In Other words,
How did IKB ( the German bank) lose that One Billion$ in the Abacus deal?! Did they sell insurance to Paluson?
So, the answer is they traded in CDSes to short the CDOs.