Well, to approximate a synthetic CDO squared, you'd first put all the moldy strawberries in a new basket, label it "Strawberries", send it to the rating agency where it would be rated AAA American strawberries, and then sell firms their choice of the least, middling, or most risky slices of the basket of "AAA American strawberries."

You forgot about also shorting the eventual result of those re-packaged strawberries by buying options on bismuth subsalicylate.

I'd be more worried about the molds (and their byproducts) being carcinogenic (e.g. Aflatoxins)

That would be gathering the moldy ones instead of tossing them. And perhaps putting them into an opaque "high risk, great price" strawberry basket.

To torture an analogy further.

There are lots and lots of strawberries of various different ages in a big pile. Some will be fine for the week and others are hours away from exploding in furry mould.

Someone splits them into the newest and oldest strawberries, and attaches a higher price to the former.

Someone then buys the older ones, and splits them again into the freshest and oldest. And so on, and so on until each group of strawberries is a set of near identical ages.

Finally, a customer comes along looking for strawberries to supply Wimbledon. It's in two days!

They find the basket of the very cheapest strawberries, and when asked how long they'll last they're told "Well, some will go off, but it's not like they'll all go off at the same time! As long as you buy them assuming maybe 5% will have gone off you'll be fine". One day later and 70% of them go mouldy and the rich folks at Wimbledon are shocked at the sudden shortage of strawberries.