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By Jim Wiandt

I would own an ETN, even now, but I'd have to have a pretty good reason.

Matt Hougan poses a great question... and it's one that seems apt, as PowerShares and SSgA launch mortgage-backed securities-ish ETFs whose underlying forefathers are the toxic underpinning of this whole mess we're in. INVESTMENT GRADE ONLY! Like that means anything these days. Heck, AIG was AAA. 5,000 companies should have gone bankrupt before there was a whiff of a problem at AIG.

So believe it, and believe it now, the credit issues are REAL. And I'm still REALLY nervous about getting into anything that's got major credit issues. But it's a bit like the fear of flying. How real is the threat that Barclays is really going under? Just about nil, I'd say. Paul and I talked about this at length off-line and he's right on this (see his original You Can't Choose Your Parents blog here). Because even if it HEADS that way, your likely worst-case scenario is having the British government on the board of directors of your fund company.

So that's the reality.

And the other reality is that zero tracking error is a pretty neat feat in the commodities space, as is long-term capital gains treatment. If THAT is a given (and it's not just yet, quite), the DJ-AIG product is a far superior product in terms of what it delivers (and it also tracks the appealingly broad, widely accepted DJ-AIG index). And what a sweet brand mix of AIG with a little Lehman spice thrown into the cooking over there.

So that's my take. Good product, unlikely default, but a real issue. Do I own ETNs? Not at the moment, no. Would I? Yes. I'd say the chances of my XLF or other parts of my equity portfolio dropping another 40%, for example, are probably greater than the chance of a Barclays default.

But you if you are not weighing out that very real risk against the positives, you're being foolish.

Source: More on ETNs and Default Risk