Someone called a talk radio show and asked, “Why would a God create evil people, killers, etc — why? It makes no sense at all.” I thought about that question and how I would answer it. From the perspective of the caller, I understand what he was thinking —
You go to the best designer, and you know that you will get quality work. So, why would God, the perfect designer/creator do inferior work?
First of all, I don’t believe that God created us from scratch. I always told my kids that creation was like making cookies — God had the ingredients and the knowledge to form the earth. And that he created spiritual bodies for us, but we have always existed as an “intelligence.”
Man was also in the beginning with God. Intelligence, or the light of truth, was not created or made, neither indeed can be. (D&C 93:29)
I think this means that God provided bodies for our intelligence, our individual essence, that has and does exist forever. Because He only provided the spiritual body much as our mortal parents provide us with mortal bodies — God would not change what already existed — our essence — our intelligence — the part of us that is unexplainably everlasting and never created. Our agency has always been part of that intelligence.
If there be two spirits, and one shall be more intelligent than the other, yet these two spirits, notwithstanding one is more intelligent than the other, have no beginning; they existed before, they shall have no end, they shall exist after, for they are gnolaum, or eternal. (Abraham 3:18-19)
Intelligence is an individual entity and we are not the same; we differ in intelligence, and possibly in our desires to be good. This intelligence entity was not created by God. Therefore, He cannot be called into question for creating evil people.
“The soul, the mind of man- Where did it come from? The learned say that God made it in the beginning; but it is not so …. God was a self-existent being. Who told you so? It is correct enough; but how did it get into your heads? Who told you that man did not exist in like manner upon the same principles? Man does exist upon the same principles …. I am dwelling on the immortality of the spirit of man. Is it logical to say that the intelligence of spirits is immortal, and yet that it had a beginning? The intelligence of spirits had no beginning, neither will it have an end …. Intelligence is eternal and exists upon a self-existent principle. It is a spirit from age to age, and there is no creation about it. (Times and Seasons)  (original sources)Â
Everyone can choose to do good, or evil; to rise above, or fall below. God is good and grants to any intelligence the choice of  a body of spirt and a second estate as a body of flesh. The agency of man is never controlled by God. Perhaps some intelligences have always preferred evil, and continue to do so when in mortality.
The other option is that we were created from a universal, elemental essence that had no individual identity until God’s creation of a spiritual birth/body. I guess that is a possibility, but I tend to feel more at home with the idea that my mind or intelligence or essence has always existed, never created, never destroyed. It’s hard to think otherwise. I find it disconcerting to think that God went to some place in the universe and scooped up a bit of primal matter called intelligence and from that created a spirit — which then became an entity of its own.
If we exist as an individual entity before God gives us a spiritual body, then He is being generous and charitable to all — the evil minded and the good minded, in that He provides bodies and a chance to progress or fall, and the opportunity to choose for ourselves — which requires that we live in a world of good and evil.