You're missing that all of these things have valid uses. Take CDS for example. They're a very efficient way for organizations to mutually insure each other's risks, cutting out the middleman. The trick is to cross them with two uncorrelated things (pork bellies and frozen OJ, for example) rather than using defaulted mortgages to insure umm defaulted mortgages. Or CDOs, done right they're how a bank protects itself against a run and is still able to do maturity transformations (e.g. turning monthly salaries into 25-year mortgages).
How can CDOs be both limited in abuse as well as a meaningful
The problem is that in any realm, commotidization acts as a one-way function, with enough complexity it becomes difficult or impossible to track, thus allowing effective money laundering (or outright theft).
The real problem is lack of oversight, or traceability inherent in these devices. This draws in shady money and, essentially, evil.
