Collateralised debt obligation

From The Jolly Contrarian
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Financial Weapons of Mass Destruction®



CDO


“Bowie started it. Lehman finished it. No-one enjoyed it.”


Docs Full blown 144A standalone. Hundreds of thousands of little words, and not one of them will help you. 9
Amendability The manager might make some portfolio substitutions, but who do you think that will help? 8
Collateral Ninja collateral. Literally. 7
Transferability Yeah but no. Made worse because they look so transferable. 7
Leverage Funding-wise, no. Money down up front. Risk wise? Hell yeah. 7
Fright-o-meter But the ratings! The ratings! 8

Collateralised debt obligation — three words which taken separately seem harmless and rather nice, but when put together convoke Satan and all his hellish angels of leverage. when bundled together and sliced up, make a CDO squared which really is the stuff of nightmares.

See also

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