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class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Structures"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.2</span> <span>Structures</span> </div> </a> <ul id="toc-Structures-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Taxation" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Taxation"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.3</span> <span>Taxation</span> </div> </a> <ul id="toc-Taxation-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Types" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Types"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.4</span> <span>Types</span> </div> </a> <ul id="toc-Types-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Types_of_collateral" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Types_of_collateral"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.5</span> <span>Types of collateral</span> </div> </a> <ul id="toc-Types_of_collateral-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Transaction_participants" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Transaction_participants"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6</span> <span>Transaction participants</span> </div> </a> <ul id="toc-Transaction_participants-sublist" class="vector-toc-list"> <li id="toc-Investors" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#Investors"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.1</span> <span>Investors</span> </div> </a> <ul id="toc-Investors-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Underwriter" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#Underwriter"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.2</span> <span>Underwriter</span> </div> </a> <ul id="toc-Underwriter-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-The_asset_manager" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#The_asset_manager"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.3</span> <span>The asset manager</span> </div> </a> <ul id="toc-The_asset_manager-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-The_trustee_and_collateral_administrator" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#The_trustee_and_collateral_administrator"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.4</span> <span>The trustee and collateral administrator</span> </div> </a> <ul id="toc-The_trustee_and_collateral_administrator-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Accountants" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#Accountants"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.5</span> <span>Accountants</span> </div> </a> <ul id="toc-Accountants-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Attorneys" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#Attorneys"> <div class="vector-toc-text"> <span class="vector-toc-numb">2.6.6</span> <span>Attorneys</span> </div> </a> <ul id="toc-Attorneys-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> </ul> </li> <li id="toc-In_popular_media" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#In_popular_media"> <div class="vector-toc-text"> <span class="vector-toc-numb">3</span> <span>In popular media</span> </div> </a> <ul id="toc-In_popular_media-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-See_also" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#See_also"> <div class="vector-toc-text"> <span class="vector-toc-numb">4</span> <span>See also</span> </div> </a> <ul id="toc-See_also-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-References" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#References"> <div class="vector-toc-text"> <span class="vector-toc-numb">5</span> <span>References</span> </div> </a> <ul id="toc-References-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-External_links" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#External_links"> <div class="vector-toc-text"> <span class="vector-toc-numb">6</span> <span>External links</span> </div> </a> <ul id="toc-External_links-sublist" class="vector-toc-list"> </ul> </li> </ul> </div> </div> </nav> </div> </div> <div class="mw-content-container"> <main id="content" class="mw-body"> <header class="mw-body-header 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<h1 id="firstHeading" class="firstHeading mw-first-heading"><span class="mw-page-title-main">Collateralized debt obligation</span></h1> <div id="p-lang-btn" class="vector-dropdown mw-portlet mw-portlet-lang" > <input type="checkbox" id="p-lang-btn-checkbox" role="button" aria-haspopup="true" data-event-name="ui.dropdown-p-lang-btn" class="vector-dropdown-checkbox mw-interlanguage-selector" aria-label="Go to an article in another language. Available in 20 languages" > <label id="p-lang-btn-label" for="p-lang-btn-checkbox" class="vector-dropdown-label cdx-button cdx-button--fake-button cdx-button--fake-button--enabled cdx-button--weight-quiet cdx-button--action-progressive mw-portlet-lang-heading-20" aria-hidden="true" ><span class="vector-icon mw-ui-icon-language-progressive mw-ui-icon-wikimedia-language-progressive"></span> <span class="vector-dropdown-label-text">20 languages</span> </label> <div class="vector-dropdown-content"> <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li class="interlanguage-link interwiki-ar mw-list-item"><a href="https://ar.wikipedia.org/wiki/%D8%A7%D9%84%D8%AA%D8%B2%D8%A7%D9%85_%D8%A7%D9%84%D8%AF%D9%8A%D9%86_%D8%A7%D9%84%D9%85%D9%83%D9%81%D9%88%D9%84" title="التزام الدين المكفول – Arabic" lang="ar" hreflang="ar" data-title="التزام الدين المكفول" data-language-autonym="العربية" data-language-local-name="Arabic" class="interlanguage-link-target"><span>العربية</span></a></li><li class="interlanguage-link interwiki-az mw-list-item"><a href="https://az.wikipedia.org/wiki/T%C9%99minatl%C4%B1_borc_%C3%B6hd%C9%99likl%C9%99ri" title="Təminatlı borc öhdəlikləri – Azerbaijani" lang="az" hreflang="az" data-title="Təminatlı borc öhdəlikləri" data-language-autonym="Azərbaycanca" data-language-local-name="Azerbaijani" class="interlanguage-link-target"><span>Azərbaycanca</span></a></li><li class="interlanguage-link interwiki-ca mw-list-item"><a href="https://ca.wikipedia.org/wiki/Obligaci%C3%B3_de_deute_garantida" title="Obligació de deute garantida – Catalan" lang="ca" hreflang="ca" data-title="Obligació de deute garantida" data-language-autonym="Català" data-language-local-name="Catalan" class="interlanguage-link-target"><span>Català</span></a></li><li class="interlanguage-link interwiki-cs mw-list-item"><a href="https://cs.wikipedia.org/wiki/Zaji%C5%A1t%C4%9Bn%C3%A1_dluhov%C3%A1_obligace" title="Zajištěná dluhová obligace – Czech" lang="cs" hreflang="cs" data-title="Zajištěná dluhová obligace" data-language-autonym="Čeština" data-language-local-name="Czech" class="interlanguage-link-target"><span>Čeština</span></a></li><li class="interlanguage-link interwiki-de mw-list-item"><a href="https://de.wikipedia.org/wiki/Collateralized_Debt_Obligation" title="Collateralized Debt Obligation – German" lang="de" hreflang="de" data-title="Collateralized Debt Obligation" data-language-autonym="Deutsch" data-language-local-name="German" class="interlanguage-link-target"><span>Deutsch</span></a></li><li class="interlanguage-link interwiki-el mw-list-item"><a href="https://el.wikipedia.org/wiki/%CE%95%CE%B3%CE%B3%CF%85%CE%B7%CE%BC%CE%AD%CE%BD%CE%B5%CF%82_%CE%B4%CE%B1%CE%BD%CE%B5%CE%B9%CE%B1%CE%BA%CE%AD%CF%82_%CF%85%CF%80%CE%BF%CF%87%CF%81%CE%B5%CF%8E%CF%83%CE%B5%CE%B9%CF%82" title="Εγγυημένες δανειακές υποχρεώσεις – Greek" lang="el" hreflang="el" data-title="Εγγυημένες δανειακές υποχρεώσεις" data-language-autonym="Ελληνικά" data-language-local-name="Greek" class="interlanguage-link-target"><span>Ελληνικά</span></a></li><li class="interlanguage-link interwiki-es mw-list-item"><a href="https://es.wikipedia.org/wiki/Obligaci%C3%B3n_colateralizada_por_deuda" title="Obligación colateralizada por deuda – Spanish" lang="es" hreflang="es" data-title="Obligación colateralizada por deuda" data-language-autonym="Español" data-language-local-name="Spanish" class="interlanguage-link-target"><span>Español</span></a></li><li class="interlanguage-link interwiki-fr mw-list-item"><a href="https://fr.wikipedia.org/wiki/Collateralized_debt_obligations" title="Collateralized debt obligations – French" lang="fr" hreflang="fr" data-title="Collateralized debt obligations" data-language-autonym="Français" data-language-local-name="French" class="interlanguage-link-target"><span>Français</span></a></li><li class="interlanguage-link interwiki-ko mw-list-item"><a href="https://ko.wikipedia.org/wiki/%EB%B6%80%EC%B1%84%EB%8B%B4%EB%B3%B4%EB%B6%80%EC%A6%9D%EA%B6%8C" title="부채담보부증권 – Korean" lang="ko" hreflang="ko" data-title="부채담보부증권" data-language-autonym="한국어" data-language-local-name="Korean" class="interlanguage-link-target"><span>한국어</span></a></li><li class="interlanguage-link interwiki-hi mw-list-item"><a href="https://hi.wikipedia.org/wiki/%E0%A4%B8%E0%A4%82%E0%A4%AA%E0%A4%BE%E0%A4%B0%E0%A5%8D%E0%A4%B6%E0%A5%8D%E0%A4%B5%E0%A4%BF%E0%A4%95_%E0%A4%8B%E0%A4%A3_%E0%A4%A6%E0%A4%BE%E0%A4%AF%E0%A4%BF%E0%A4%A4%E0%A5%8D%E0%A4%B5" title="संपार्श्विक ऋण दायित्व – Hindi" lang="hi" hreflang="hi" data-title="संपार्श्विक ऋण दायित्व" data-language-autonym="हिन्दी" data-language-local-name="Hindi" class="interlanguage-link-target"><span>हिन्दी</span></a></li><li class="interlanguage-link interwiki-it mw-list-item"><a href="https://it.wikipedia.org/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation – Italian" lang="it" hreflang="it" data-title="Collateralized debt obligation" data-language-autonym="Italiano" data-language-local-name="Italian" class="interlanguage-link-target"><span>Italiano</span></a></li><li class="interlanguage-link interwiki-lt mw-list-item"><a href="https://lt.wikipedia.org/wiki/Turtu_garantuota_obligacija" title="Turtu garantuota obligacija – Lithuanian" lang="lt" hreflang="lt" data-title="Turtu garantuota obligacija" data-language-autonym="Lietuvių" data-language-local-name="Lithuanian" class="interlanguage-link-target"><span>Lietuvių</span></a></li><li class="interlanguage-link interwiki-nl mw-list-item"><a href="https://nl.wikipedia.org/wiki/Collateralized_debt_obligation" title="Collateralized debt obligation – Dutch" lang="nl" hreflang="nl" data-title="Collateralized debt obligation" data-language-autonym="Nederlands" data-language-local-name="Dutch" class="interlanguage-link-target"><span>Nederlands</span></a></li><li class="interlanguage-link interwiki-ja mw-list-item"><a href="https://ja.wikipedia.org/wiki/%E5%82%B5%E5%8B%99%E6%8B%85%E4%BF%9D%E8%A8%BC%E5%88%B8" title="債務担保証券 – Japanese" lang="ja" hreflang="ja" data-title="債務担保証券" data-language-autonym="日本語" data-language-local-name="Japanese" class="interlanguage-link-target"><span>日本語</span></a></li><li class="interlanguage-link interwiki-pl mw-list-item"><a href="https://pl.wikipedia.org/wiki/Collateralised_Debt_Obligation" title="Collateralised Debt Obligation – Polish" lang="pl" hreflang="pl" data-title="Collateralised Debt Obligation" data-language-autonym="Polski" data-language-local-name="Polish" class="interlanguage-link-target"><span>Polski</span></a></li><li class="interlanguage-link interwiki-pt mw-list-item"><a href="https://pt.wikipedia.org/wiki/Obriga%C3%A7%C3%A3o_de_d%C3%ADvida_colateralizada" title="Obrigação de dívida colateralizada – Portuguese" lang="pt" hreflang="pt" data-title="Obrigação de dívida colateralizada" data-language-autonym="Português" data-language-local-name="Portuguese" class="interlanguage-link-target"><span>Português</span></a></li><li class="interlanguage-link interwiki-ru mw-list-item"><a href="https://ru.wikipedia.org/wiki/%D0%9E%D0%B1%D0%B5%D1%81%D0%BF%D0%B5%D1%87%D0%B5%D0%BD%D0%BD%D1%8B%D0%B5_%D0%B4%D0%BE%D0%BB%D0%B3%D0%BE%D0%B2%D1%8B%D0%B5_%D0%BE%D0%B1%D1%8F%D0%B7%D0%B0%D1%82%D0%B5%D0%BB%D1%8C%D1%81%D1%82%D0%B2%D0%B0" title="Обеспеченные долговые обязательства – Russian" lang="ru" hreflang="ru" data-title="Обеспеченные долговые обязательства" data-language-autonym="Русский" data-language-local-name="Russian" class="interlanguage-link-target"><span>Русский</span></a></li><li class="interlanguage-link interwiki-sl mw-list-item"><a href="https://sl.wikipedia.org/wiki/Zadol%C5%BEnice,_zavarovane_z_dolgom" title="Zadolžnice, zavarovane z dolgom – Slovenian" lang="sl" hreflang="sl" data-title="Zadolžnice, zavarovane z dolgom" data-language-autonym="Slovenščina" data-language-local-name="Slovenian" class="interlanguage-link-target"><span>Slovenščina</span></a></li><li class="interlanguage-link interwiki-vi mw-list-item"><a href="https://vi.wikipedia.org/wiki/Ngh%C4%A9a_v%E1%BB%A5_n%E1%BB%A3_th%E1%BA%BF_ch%E1%BA%A5p" title="Nghĩa vụ nợ thế chấp – Vietnamese" lang="vi" hreflang="vi" data-title="Nghĩa vụ nợ thế chấp" data-language-autonym="Tiếng Việt" data-language-local-name="Vietnamese" class="interlanguage-link-target"><span>Tiếng Việt</span></a></li><li class="interlanguage-link interwiki-zh mw-list-item"><a href="https://zh.wikipedia.org/wiki/%E5%82%B5%E5%8B%99%E6%93%94%E4%BF%9D%E8%AD%89%E5%88%B8" title="債務擔保證券 – Chinese" lang="zh" hreflang="zh" data-title="債務擔保證券" data-language-autonym="中文" data-language-local-name="Chinese" class="interlanguage-link-target"><span>中文</span></a></li> </ul> <div class="after-portlet after-portlet-lang"><span class="wb-langlinks-edit wb-langlinks-link"><a href="https://www.wikidata.org/wiki/Special:EntityPage/Q1108930#sitelinks-wikipedia" 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markets</th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <div style="display:inline-block; padding:0.2em 0.4em; line-height:1.2em; line-height:1.25em;"><a href="/wiki/Derivatives_market" title="Derivatives market">Derivatives</a> <div class="hlist"><ul><li>(<a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a></li><li><a href="/wiki/Futures_exchange" title="Futures exchange">Futures exchange</a></li><li><a href="/wiki/Hybrid_security" title="Hybrid security">Hybrid security</a>)</li></ul></div> </div> <div style="display:inline-block; padding:0.2em 0.4em; line-height:1.2em; line-height:1.25em;padding-bottom:0.25em;"><a href="/wiki/Foreign_exchange_market" title="Foreign exchange market">Foreign exchange</a> <div class="hlist"><ul><li>(<a href="/wiki/Currency" title="Currency">Currency</a></li><li><a href="/wiki/Exchange_rate" title="Exchange rate">Exchange rate</a>)</li></ul></div> </div> <ul><li><a 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href="/wiki/Fintech" title="Fintech">Fintech</a></li> <li><a href="/wiki/Greenwashing" title="Greenwashing">Greenwashing</a></li> <li><a href="/wiki/Growth_investing" title="Growth investing">Growth investing</a></li> <li><a href="/wiki/Impact_investing" title="Impact investing">Impact investing</a></li> <li><a href="/wiki/Investment_management" title="Investment management">Investment management</a></li> <li><a href="/wiki/Market_risk" title="Market risk">Market risk</a></li> <li><a href="/wiki/Market_trend" title="Market trend">Market trend</a></li> <li><a href="/wiki/Speculative_attack" title="Speculative attack">Speculative attack</a></li> <li><a href="/wiki/Sustainable_development_goals" class="mw-redirect" title="Sustainable development goals">Sustainable development goals</a></li> <li><a href="/wiki/Sustainable_finance" title="Sustainable finance">Sustainable finance</a></li></ul></td> </tr><tr><td class="sidebar-navbar" style="border-top:1px solid #aaa;"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><style data-mw-deduplicate="TemplateStyles:r1239400231">.mw-parser-output .navbar{display:inline;font-size:88%;font-weight:normal}.mw-parser-output .navbar-collapse{float:left;text-align:left}.mw-parser-output .navbar-boxtext{word-spacing:0}.mw-parser-output .navbar ul{display:inline-block;white-space:nowrap;line-height:inherit}.mw-parser-output .navbar-brackets::before{margin-right:-0.125em;content:"[ "}.mw-parser-output .navbar-brackets::after{margin-left:-0.125em;content:" ]"}.mw-parser-output .navbar li{word-spacing:-0.125em}.mw-parser-output .navbar a>span,.mw-parser-output .navbar a>abbr{text-decoration:inherit}.mw-parser-output .navbar-mini abbr{font-variant:small-caps;border-bottom:none;text-decoration:none;cursor:inherit}.mw-parser-output .navbar-ct-full{font-size:114%;margin:0 7em}.mw-parser-output .navbar-ct-mini{font-size:114%;margin:0 4em}html.skin-theme-clientpref-night .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}@media(prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}}@media print{.mw-parser-output .navbar{display:none!important}}</style><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Financial_markets" title="Template:Financial markets"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Financial_markets" title="Template talk:Financial markets"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Financial_markets" title="Special:EditPage/Template:Financial markets"><abbr title="Edit this template">e</abbr></a></li></ul></div></td></tr></tbody></table> <p>A <b>collateralized debt obligation</b> (<b>CDO</b>) is a type of <a href="/wiki/Structured_finance" title="Structured finance">structured</a> <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed security</a> (ABS).<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a> (MBS).<sup id="cite_ref-Lepke_2013_2-0" class="reference"><a href="#cite_note-Lepke_2013-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns.<sup id="cite_ref-4" class="reference"><a href="#cite_note-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup> Distinctively, CDO credit risk is typically assessed based on a <a href="/wiki/Probability_of_default" title="Probability of default">probability of default</a> (PD) derived from ratings on those bonds or assets.<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup> </p><p>The CDO is "sliced" into sections known as <a href="/wiki/Tranche" title="Tranche">"tranches"</a>, which "catch" the cash flow of interest and principal payments in sequence based on seniority.<sup id="cite_ref-ssrn.com_6-0" class="reference"><a href="#cite_note-ssrn.com-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> If some loans default and the cash collected by the CDO is insufficient to pay all of its investors, those in the lowest, most "junior" tranches suffer losses first.<sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup> The last to lose payment from default are the safest, most senior tranches. Consequently, <a href="/wiki/Coupon_(bond)" class="mw-redirect" title="Coupon (bond)">coupon</a> payments (and interest rates) vary by tranche with the safest/most senior tranches receiving the lowest rates and the lowest tranches receiving the highest rates to compensate for higher <a href="/wiki/Default_risk" class="mw-redirect" title="Default risk">default risk</a>. As an example, a CDO might issue the following tranches in order of safeness: Senior AAA (sometimes known as "super senior"); Junior AAA; AA; A; BBB; Residual.<sup id="cite_ref-Lemke_2014_8-0" class="reference"><a href="#cite_note-Lemke_2014-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup> </p><p>Separate <a href="/wiki/Special_purpose_entity" class="mw-redirect" title="Special purpose entity">special purpose entities</a>—rather than the parent <a href="/wiki/Investment_bank" class="mw-redirect" title="Investment bank">investment bank</a>—issue the CDOs and pay interest to investors. As CDOs developed, some sponsors repackaged tranches into yet another iteration, known as "<a href="/wiki/CDO-Squared" title="CDO-Squared">CDO-Squared</a>", "CDOs of CDOs" or "<a href="/wiki/Synthetic_CDO" title="Synthetic CDO">synthetic CDOs</a>".<sup id="cite_ref-Lemke_2014_8-1" class="reference"><a href="#cite_note-Lemke_2014-8"><span class="cite-bracket">[</span>8<span class="cite-bracket">]</span></a></sup> </p><p>In the early 2000s, the debt underpinning CDOs was generally diversified,<sup id="cite_ref-9" class="reference"><a href="#cite_note-9"><span class="cite-bracket">[</span>9<span class="cite-bracket">]</span></a></sup> but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this had changed. CDO collateral became dominated by high risk (<a href="/wiki/Credit_ratings#Corporate_credit_ratings" class="mw-redirect" title="Credit ratings">BBB or A</a>) tranches recycled from other asset-backed securities, whose assets were usually <a href="/wiki/Subprime_mortgage" class="mw-redirect" title="Subprime mortgage">subprime mortgages</a>.<sup id="cite_ref-FCIR-p127_10-0" class="reference"><a href="#cite_note-FCIR-p127-10"><span class="cite-bracket">[</span>10<span class="cite-bracket">]</span></a></sup> These CDOs have been called "the engine that powered the mortgage supply chain" for subprime mortgages,<sup id="cite_ref-FCIR-130_11-0" class="reference"><a href="#cite_note-FCIR-130-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> and are credited with giving lenders greater incentive to make subprime loans,<sup id="cite_ref-FCIR-133_12-0" class="reference"><a href="#cite_note-FCIR-133-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup> leading to the 2007–2009 <a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">subprime mortgage crisis</a>.<sup id="cite_ref-13" class="reference"><a href="#cite_note-13"><span class="cite-bracket">[</span>13<span class="cite-bracket">]</span></a></sup> </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="Market_history">Market history</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=1" title="Edit section: Market history"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Beginnings">Beginnings</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=2" title="Edit section: Beginnings"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In 1970, the US government-backed mortgage guarantor <a href="/wiki/Ginnie_Mae" class="mw-redirect" title="Ginnie Mae">Ginnie Mae</a> created the first MBS (<a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed security</a>), based on FHA and VA mortgages. It guaranteed these MBSs.<sup id="cite_ref-14" class="reference"><a href="#cite_note-14"><span class="cite-bracket">[</span>14<span class="cite-bracket">]</span></a></sup> This would be the precursor to CDOs that would be created two decades later. In 1971, <a href="/wiki/Freddie_Mac" title="Freddie Mac">Freddie Mac</a> issued its first Mortgage Participation Certificate. This was the first <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed security</a> made of ordinary mortgages.<sup id="cite_ref-15" class="reference"><a href="#cite_note-15"><span class="cite-bracket">[</span>15<span class="cite-bracket">]</span></a></sup> All through the 1970s, private companies began mortgage asset securitization by creating private mortgage pools.<sup id="cite_ref-16" class="reference"><a href="#cite_note-16"><span class="cite-bracket">[</span>16<span class="cite-bracket">]</span></a></sup> </p><p>In 1974, the <a href="/wiki/Equal_Credit_Opportunity_Act" title="Equal Credit Opportunity Act">Equal Credit Opportunity Act</a> in the United States imposed heavy sanctions for financial institutions found guilty of discrimination on the basis of race, color, religion, national origin, sex, marital status, or age<sup id="cite_ref-17" class="reference"><a href="#cite_note-17"><span class="cite-bracket">[</span>17<span class="cite-bracket">]</span></a></sup> This led to a more open policy of giving loans (sometimes subprime) by banks, guaranteed in most cases by <a href="/wiki/Fannie_Mae" title="Fannie Mae">Fannie Mae</a> and Freddie Mac. In 1977, the <a href="/wiki/Community_Reinvestment_Act" title="Community Reinvestment Act">Community Reinvestment Act</a> was enacted to address historical discrimination in lending, such as '<a href="/wiki/Redlining" title="Redlining">redlining</a>'. The Act encouraged commercial banks and savings associations (Savings and loan banks) to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods (who might earlier have been thought of as too risky for home loans).<sup id="cite_ref-18" class="reference"><a href="#cite_note-18"><span class="cite-bracket">[</span>18<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-Federal_Reserve_19-0" class="reference"><a href="#cite_note-Federal_Reserve-19"><span class="cite-bracket">[</span>19<span class="cite-bracket">]</span></a></sup> </p><p>In 1977, the investment bank <a href="/wiki/Salomon_Brothers" title="Salomon Brothers">Salomon Brothers</a> created a "private label" MBS (mortgage backed security)—one that did not involve <a href="/wiki/Government-sponsored_enterprise" title="Government-sponsored enterprise">government-sponsored enterprise</a> (GSE) mortgages. However, it failed in the marketplace.<sup id="cite_ref-20" class="reference"><a href="#cite_note-20"><span class="cite-bracket">[</span>20<span class="cite-bracket">]</span></a></sup> Subsequently, <a href="/wiki/Lewis_Ranieri" title="Lewis Ranieri">Lewis Ranieri</a> (<a href="/wiki/Salomon_Brothers" title="Salomon Brothers">Salomon</a>) and <a href="/wiki/Laurence_D._Fink" class="mw-redirect" title="Laurence D. Fink">Larry Fink</a> (<a href="/wiki/First_Boston" title="First Boston">First Boston</a>) invented the idea of <a href="/wiki/Securitization" title="Securitization">securitization</a>; different mortgages were pooled together and this pool was then sliced into <a href="/wiki/Tranche" title="Tranche">tranches</a>, each of which was then sold separately to different investors.<sup id="cite_ref-21" class="reference"><a href="#cite_note-21"><span class="cite-bracket">[</span>21<span class="cite-bracket">]</span></a></sup> Many of these tranches were in turn bundled together, earning them the name CDO (Collateralized debt obligation).<sup id="cite_ref-22" class="reference"><a href="#cite_note-22"><span class="cite-bracket">[</span>22<span class="cite-bracket">]</span></a></sup> </p><p>The first CDOs to be issued by a private bank were seen in 1987 by the bankers at the now-defunct <a href="/wiki/Drexel_Burnham_Lambert" title="Drexel Burnham Lambert">Drexel Burnham Lambert</a> Inc. for the also now-defunct Imperial Savings Association.<sup id="cite_ref-Cresci_23-0" class="reference"><a href="#cite_note-Cresci-23"><span class="cite-bracket">[</span>23<span class="cite-bracket">]</span></a></sup> During the 1990s the collateral of CDOs was generally <a href="/wiki/Corporate_bond" title="Corporate bond">corporate</a> and emerging market bonds and bank loans.<sup id="cite_ref-FCIR-129_24-0" class="reference"><a href="#cite_note-FCIR-129-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup> After 1998 "multi-sector" CDOs were developed by Prudential Securities,<sup id="cite_ref-FCIR-129-30_25-0" class="reference"><a href="#cite_note-FCIR-129-30-25"><span class="cite-bracket">[</span>25<span class="cite-bracket">]</span></a></sup> but CDOs remained fairly obscure until after 2000.<sup id="cite_ref-Nocera,_p.120_26-0" class="reference"><a href="#cite_note-Nocera,_p.120-26"><span class="cite-bracket">[</span>26<span class="cite-bracket">]</span></a></sup> In 2002 and 2003 CDOs had a setback when rating agencies "were forced to downgrade hundreds" of the securities,<sup id="cite_ref-Nocera,_p.121_27-0" class="reference"><a href="#cite_note-Nocera,_p.121-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup> but sales of CDOs grew—from $69 billion in 2000 to around $500 billion in 2006.<sup id="cite_ref-mclean-p123_28-0" class="reference"><a href="#cite_note-mclean-p123-28"><span class="cite-bracket">[</span>28<span class="cite-bracket">]</span></a></sup> From 2004 through 2007, $1.4 trillion worth of CDOs were issued.<sup id="cite_ref-Endangerment-283_29-0" class="reference"><a href="#cite_note-Endangerment-283-29"><span class="cite-bracket">[</span>29<span class="cite-bracket">]</span></a></sup> </p><p>Early CDOs were diversified, and might include everything from aircraft lease-equipment debt, manufactured housing loans, to student loans and credit card debt. The diversification of borrowers in these "multisector CDOs" was a selling point, as it meant that if there was a downturn in one industry like aircraft manufacturing and their loans defaulted, other industries like manufactured housing might be unaffected.<sup id="cite_ref-reckless-279_30-0" class="reference"><a href="#cite_note-reckless-279-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup> Another selling point was that CDOs offered returns that were sometimes 2-3 percentage points higher than corporate bonds with the same credit rating.<sup id="cite_ref-reckless-279_30-1" class="reference"><a href="#cite_note-reckless-279-30"><span class="cite-bracket">[</span>30<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-31" class="reference"><a href="#cite_note-31"><span class="cite-bracket">[</span>31<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading4"><h4 id="Explanations_for_growth">Explanations for growth</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=3" title="Edit section: Explanations for growth"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><b>Advantages of securitization –</b> Depository banks had incentive to "<a href="/wiki/Securitization" title="Securitization">securitize</a>" loans they originated—often in the form of CDO securities—because this removes the loans from their books. The transfer of these loans (along with related risk) to security-buying investors in return for cash frees up the banks' capital. This enabled them to remain in compliance with <a href="/wiki/Capital_requirement" title="Capital requirement">capital requirement</a> laws while lending again and generating additional origination fees.</li> <li><b>Global demand for fixed income investments</b> – From 2000 to 2007, worldwide fixed income investment (i.e. investments in bonds and other conservative securities) roughly doubled in size to $70 trillion, yet the supply of relatively safe, income generating investments had not grown as fast, which bid up bond prices and drove down interest rates.<sup id="cite_ref-giantpoolpeabody_32-0" class="reference"><a href="#cite_note-giantpoolpeabody-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-giantpool_33-0" class="reference"><a href="#cite_note-giantpool-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> Investment banks on Wall Street answered this demand with <a href="/wiki/Financial_innovation" title="Financial innovation">financial innovation</a> such as the <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed security</a> (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies.<sup id="cite_ref-giantpool_33-1" class="reference"><a href="#cite_note-giantpool-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup></li> <li><b>Low interest rates</b> – Fears of deflation, the bursting of the <a href="/wiki/Dot-com_bubble" title="Dot-com bubble">dot-com bubble</a>, a U.S. recession, and the U.S. trade deficit kept interest rates low globally from 2000 to 2004–5, according to Economist <a href="/wiki/Mark_Zandi" title="Mark Zandi">Mark Zandi</a>.<sup id="cite_ref-34" class="reference"><a href="#cite_note-34"><span class="cite-bracket">[</span>34<span class="cite-bracket">]</span></a></sup> The low yield of the safe <a href="/wiki/United_States_Treasury_security" title="United States Treasury security">US Treasury bonds</a> created demand by global investors for subprime mortgage-backed CDOs with their relatively high-yields but credit ratings as high as the Treasuries. This search for yield by global investors caused many to purchase CDOs, though they lived to regret trusting the credit rating agencies' ratings.<sup id="cite_ref-Zandi_2009_35-0" class="reference"><a href="#cite_note-Zandi_2009-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup></li> <li><b>Pricing models</b> – <a href="/wiki/Gaussian_copula_model" class="mw-redirect" title="Gaussian copula model">Gaussian copula models</a>, introduced in 2001 by <a href="/wiki/David_X._Li" title="David X. Li">David X. Li</a>, allowed for the rapid pricing of CDOs.<sup id="cite_ref-36" class="reference"><a href="#cite_note-36"><span class="cite-bracket">[</span>36<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-37" class="reference"><a href="#cite_note-37"><span class="cite-bracket">[</span>37<span class="cite-bracket">]</span></a></sup></li></ul> <div class="mw-heading mw-heading3"><h3 id="Subprime_mortgage_boom">Subprime mortgage boom</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=4" title="Edit section: Subprime mortgage boom"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <figure typeof="mw:File/Thumb"><a href="/wiki/File:Collateralized_Debt_Obligations.svg" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/b/bd/Collateralized_Debt_Obligations.svg/450px-Collateralized_Debt_Obligations.svg.png" decoding="async" width="450" height="498" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/b/bd/Collateralized_Debt_Obligations.svg/675px-Collateralized_Debt_Obligations.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/b/bd/Collateralized_Debt_Obligations.svg/900px-Collateralized_Debt_Obligations.svg.png 2x" data-file-width="700" data-file-height="775" /></a><figcaption>Source: <a rel="nofollow" class="external text" href="https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf">Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States</a>, p.128, figure 8.1</figcaption></figure> <figure class="mw-halign-right" typeof="mw:File/Thumb"><a href="/wiki/File:CDO_-_FCIC_and_IMF_Diagram.png" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/1/12/CDO_-_FCIC_and_IMF_Diagram.png/800px-CDO_-_FCIC_and_IMF_Diagram.png" decoding="async" width="800" height="600" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/1/12/CDO_-_FCIC_and_IMF_Diagram.png 1.5x" data-file-width="960" data-file-height="720" /></a><figcaption>IMF Diagram of CDO and RMBS</figcaption></figure> <figure typeof="mw:File/Thumb"><a href="/wiki/File:Securitization_Market_Activity.png" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/3/37/Securitization_Market_Activity.png/350px-Securitization_Market_Activity.png" decoding="async" width="350" height="263" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/3/37/Securitization_Market_Activity.png/525px-Securitization_Market_Activity.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/3/37/Securitization_Market_Activity.png/700px-Securitization_Market_Activity.png 2x" data-file-width="960" data-file-height="720" /></a><figcaption>Securitization markets were impaired during the crisis.</figcaption></figure> <figure typeof="mw:File/Thumb"><a href="/wiki/File:CDO_issuances_2004-2012-darker.png" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/6/62/CDO_issuances_2004-2012-darker.png/350px-CDO_issuances_2004-2012-darker.png" decoding="async" width="350" height="199" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/6/62/CDO_issuances_2004-2012-darker.png/525px-CDO_issuances_2004-2012-darker.png 1.5x, //upload.wikimedia.org/wikipedia/commons/6/62/CDO_issuances_2004-2012-darker.png 2x" data-file-width="547" data-file-height="311" /></a><figcaption>The volume of CDOs issued globally crashed during the subprime crisis but has recovered slightly. (source: SIFMA, Statistics, Structured Finance<sup id="cite_ref-38" class="reference"><a href="#cite_note-38"><span class="cite-bracket">[</span>38<span class="cite-bracket">]</span></a></sup></figcaption></figure> <style data-mw-deduplicate="TemplateStyles:r1236090951">.mw-parser-output .hatnote{font-style:italic}.mw-parser-output div.hatnote{padding-left:1.6em;margin-bottom:0.5em}.mw-parser-output .hatnote i{font-style:normal}.mw-parser-output .hatnote+link+.hatnote{margin-top:-0.5em}@media print{body.ns-0 .mw-parser-output .hatnote{display:none!important}}</style><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">Subprime mortgage crisis</a></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">See also: <a href="/wiki/Subprime_lending" title="Subprime lending">Subprime lending</a> and <a href="/wiki/Bear_Stearns#Subprime_mortgage_hedge_fund_crisis" title="Bear Stearns">Bear Stearns subprime mortgage hedge fund crisis</a></div> <p>In 2005, as the CDO market continued to grow, subprime mortgages began to replace the diversified consumer loans as collateral. By 2004, mortgage-backed securities accounted for more than half of the collateral in CDOs.<sup id="cite_ref-FCIR-130_11-1" class="reference"><a href="#cite_note-FCIR-130-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-39" class="reference"><a href="#cite_note-39"><span class="cite-bracket">[</span>39<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-40" class="reference"><a href="#cite_note-40"><span class="cite-bracket">[</span>40<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-41" class="reference"><a href="#cite_note-41"><span class="cite-bracket">[</span>41<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-42" class="reference"><a href="#cite_note-42"><span class="cite-bracket">[</span>42<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-43" class="reference"><a href="#cite_note-43"><span class="cite-bracket">[</span>43<span class="cite-bracket">]</span></a></sup> According to the <i>Financial Crisis Inquiry Report</i>, "the CDO became the engine that powered the mortgage supply chain",<sup id="cite_ref-FCIR-130_11-2" class="reference"><a href="#cite_note-FCIR-130-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> promoting an increase in demand for mortgage-backed securities without which lenders would have "had less reason to push so hard to make" non-prime loans.<sup id="cite_ref-FCIR-133_12-1" class="reference"><a href="#cite_note-FCIR-133-12"><span class="cite-bracket">[</span>12<span class="cite-bracket">]</span></a></sup> CDOs not only bought crucial tranches of subprime mortgage-backed securities, they provided cash for the initial funding of the securities.<sup id="cite_ref-FCIR-130_11-3" class="reference"><a href="#cite_note-FCIR-130-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> Between 2003 and 2007, Wall Street issued almost $700 billion in CDOs that included mortgage-backed securities as collateral.<sup id="cite_ref-FCIR-130_11-4" class="reference"><a href="#cite_note-FCIR-130-11"><span class="cite-bracket">[</span>11<span class="cite-bracket">]</span></a></sup> Despite this loss of diversification, CDO tranches were given the same proportion of high ratings by rating agencies<sup id="cite_ref-44" class="reference"><a href="#cite_note-44"><span class="cite-bracket">[</span>44<span class="cite-bracket">]</span></a></sup> on the grounds that mortgages were diversified by region and so "uncorrelated"<sup id="cite_ref-45" class="reference"><a href="#cite_note-45"><span class="cite-bracket">[</span>45<span class="cite-bracket">]</span></a></sup>—though those ratings were lowered after mortgage holders began to default.<sup id="cite_ref-hart_46-0" class="reference"><a href="#cite_note-hart-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-econintersect_47-0" class="reference"><a href="#cite_note-econintersect-47"><span class="cite-bracket">[</span>47<span class="cite-bracket">]</span></a></sup> </p><p>The rise of "ratings arbitrage"—i.e., pooling low-rated tranches to make CDOs—helped push sales of CDOs to about $500 billion in 2006,<sup id="cite_ref-mclean-p123_28-1" class="reference"><a href="#cite_note-mclean-p123-28"><span class="cite-bracket">[</span>28<span class="cite-bracket">]</span></a></sup> with a global CDO market of over US$1.5 trillion.<sup id="cite_ref-48" class="reference"><a href="#cite_note-48"><span class="cite-bracket">[</span>48<span class="cite-bracket">]</span></a></sup> CDO was the fastest-growing sector of the structured finance market between 2003 and 2006; the number of CDO tranches issued in 2006 (9,278) was almost twice the number of tranches issued in 2005 (4,706).<sup id="cite_ref-nber_49-0" class="reference"><a href="#cite_note-nber-49"><span class="cite-bracket">[</span>49<span class="cite-bracket">]</span></a></sup> </p><p>CDOs, like mortgage-backed securities, were financed with debt, enhancing their profits but also enhancing losses if the market reversed course.<sup id="cite_ref-FCIR-134_50-0" class="reference"><a href="#cite_note-FCIR-134-50"><span class="cite-bracket">[</span>50<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading4"><h4 id="Explanations_for_growth_2">Explanations for growth</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=5" title="Edit section: Explanations for growth"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Subprime mortgages had been financed by <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a> (MBS). Like CDOs, MBSs were structured into tranches, but issuers of the securities had difficulty selling the more lower level/lower-rated "mezzanine" tranches—the tranches rated somewhere from AA to BB. </p> <blockquote><p>Because most traditional mortgage investors are risk-averse, either because of the restrictions of their investment charters or business practices, they are interested in buying the higher-rated segments of the loan stack; as a result, those slices are easiest to sell. The more challenging task is finding buyers for the riskier pieces at the bottom of the pile. The way mortgage securities are structured, if you cannot find buyers for the lower-rated slices, the rest of the pool cannot be sold.<sup id="cite_ref-reckless-278_51-0" class="reference"><a href="#cite_note-reckless-278-51"><span class="cite-bracket">[</span>51<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-52" class="reference"><a href="#cite_note-52"><span class="cite-bracket">[</span>52<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>To deal with the problem, investment bankers "recycled" the mezzanine tranches, selling them to underwriters making more structured securities—CDOs. Though the pool that made up the CDO collateral might be overwhelmingly mezzanine tranches, most of the tranches (70<sup id="cite_ref-53" class="reference"><a href="#cite_note-53"><span class="cite-bracket">[</span>53<span class="cite-bracket">]</span></a></sup> to 80%<sup id="cite_ref-54" class="reference"><a href="#cite_note-54"><span class="cite-bracket">[</span>54<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-55" class="reference"><a href="#cite_note-55"><span class="cite-bracket">[</span>55<span class="cite-bracket">]</span></a></sup>) of the CDO were rated not BBB, A−, etc., but triple A. The minority of the tranches that were mezzanine were often bought up by other CDOs, concentrating the lower rated tranches still further. (See the chart on "The Theory of How the Financial System Created AAA-rated Assets out of Subprime Mortgages".) </p><p>As journalist <a href="/wiki/Gretchen_Morgenson" title="Gretchen Morgenson">Gretchen Morgenson</a> put it, CDOs became "the perfect dumping ground for the low-rated slices Wall Street couldn't sell on its own."<sup id="cite_ref-reckless-278_51-1" class="reference"><a href="#cite_note-reckless-278-51"><span class="cite-bracket">[</span>51<span class="cite-bracket">]</span></a></sup> </p><p>Other factors explaining the popularity of CDOs include: </p> <ul><li>Growing demand for fixed income investments that started earlier in the decade continued.<sup id="cite_ref-giantpoolpeabody_32-1" class="reference"><a href="#cite_note-giantpoolpeabody-32"><span class="cite-bracket">[</span>32<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-giantpool_33-2" class="reference"><a href="#cite_note-giantpool-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> A "global savings glut"<sup id="cite_ref-56" class="reference"><a href="#cite_note-56"><span class="cite-bracket">[</span>56<span class="cite-bracket">]</span></a></sup> leading to "large capital inflows" from abroad helped finance the housing boom, keeping down US mortgage rates, even after the <a href="/wiki/Federal_Reserve_Bank" title="Federal Reserve Bank">Federal Reserve Bank</a> had raised interest rates to cool off the economy.<sup id="cite_ref-57" class="reference"><a href="#cite_note-57"><span class="cite-bracket">[</span>57<span class="cite-bracket">]</span></a></sup></li> <li><a href="/wiki/Supply_(economics)" title="Supply (economics)">Supply</a> generated by "hefty" fees the CDO industry earned. According to "one hedge fund manager who became a big investor in CDOs", as much "as 40 to 50 percent" of the cash flow generated by the assets in a CDO went to "pay the bankers, the CDO manager, the rating agencies, and others who took out fees."<sup id="cite_ref-Nocera,_p.121_27-1" class="reference"><a href="#cite_note-Nocera,_p.121-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup> Rating agencies in particular—whose high ratings of the CDO tranches were crucial to the industry and who were paid by CDO issuers —earned extraordinary profits. <a href="/wiki/Moody%27s_Ratings" title="Moody's Ratings">Moody's Investors Service</a>, one of the two biggest rating agencies, could earn "as much as $250,000 to rate a mortgage pool with $350 million in assets, versus the $50,000 in fees generated when rating a municipal bond of a similar size." In 2006, revenues from Moody's structured finance division "accounted for fully 44%" of all Moody's sales.<sup id="cite_ref-reckless-280_58-0" class="reference"><a href="#cite_note-reckless-280-58"><span class="cite-bracket">[</span>58<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-59" class="reference"><a href="#cite_note-59"><span class="cite-bracket">[</span>59<span class="cite-bracket">]</span></a></sup> Moody's <a href="/wiki/Operating_margin" title="Operating margin">operating margins</a> were "consistently over 50%, making it one of the most profitable companies in existence"—more profitable in terms of margins than <a href="/wiki/ExxonMobil" title="ExxonMobil">ExxonMobil</a> or <a href="/wiki/Microsoft" title="Microsoft">Microsoft</a>.<sup id="cite_ref-McLean-124_60-0" class="reference"><a href="#cite_note-McLean-124-60"><span class="cite-bracket">[</span>60<span class="cite-bracket">]</span></a></sup> Between the time Moody's was spun off as a public company and February 2007, its stock rose 340%.<sup id="cite_ref-McLean-124_60-1" class="reference"><a href="#cite_note-McLean-124-60"><span class="cite-bracket">[</span>60<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-61" class="reference"><a href="#cite_note-61"><span class="cite-bracket">[</span>61<span class="cite-bracket">]</span></a></sup></li> <li>Trust in rating agencies. CDO managers "didn't always have to disclose what the securities contained" because the contents of the CDO were subject to change. But this lack of transparency did not affect demand for the securities. Investors "weren't so much buying a security. They were buying a triple-A rating," according to business journalists <a href="/wiki/Bethany_McLean" title="Bethany McLean">Bethany McLean</a> and <a href="/wiki/Joe_Nocera" title="Joe Nocera">Joe Nocera</a>.<sup id="cite_ref-Nocera,_p.121_27-2" class="reference"><a href="#cite_note-Nocera,_p.121-27"><span class="cite-bracket">[</span>27<span class="cite-bracket">]</span></a></sup></li> <li><a href="/wiki/Financial_innovation" title="Financial innovation">Financial innovations</a>, such as <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a> and <a href="/wiki/Synthetic_CDO" title="Synthetic CDO">synthetic CDO</a>. Credit default swaps provided insurance to investors against the possibility of losses in the value of tranches from default in exchange for premium-like payments, making CDOs appear "to be virtually risk-free" to investors.<sup id="cite_ref-FCIR-132_62-0" class="reference"><a href="#cite_note-FCIR-132-62"><span class="cite-bracket">[</span>62<span class="cite-bracket">]</span></a></sup> Synthetic CDOs were cheaper and easier to create than original "cash" CDOs. Synthetics "referenced" cash CDOs, replacing interest payments from MBS tranches with premium-like payments from credit default swaps. Rather than providing funding for housing, synthetic CDO-buying investors were in effect providing insurance against mortgage default.<sup id="cite_ref-63" class="reference"><a href="#cite_note-63"><span class="cite-bracket">[</span>63<span class="cite-bracket">]</span></a></sup> If the CDO did not perform per contractual requirements, one counterparty (typically a large <a href="/wiki/Investment_bank" class="mw-redirect" title="Investment bank">investment bank</a> or <a href="/wiki/Hedge_fund" title="Hedge fund">hedge fund</a>) had to pay another.<sup id="cite_ref-propublica.org_64-0" class="reference"><a href="#cite_note-propublica.org-64"><span class="cite-bracket">[</span>64<span class="cite-bracket">]</span></a></sup> As underwriting standards deteriorated and the housing market became saturated, subprime mortgages became less abundant. Synthetic CDOs began to fill in for the original cash CDOs. Because more than one—in fact numerous—synthetics could be made to reference the same original, the amount of money that moved among market participants increased dramatically.</li></ul> <div class="mw-heading mw-heading3"><h3 id="Crash">Crash</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=6" title="Edit section: Crash"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <figure typeof="mw:File/Thumb"><a href="/wiki/File:Impaired_Securities.GIF" class="mw-file-description"><img src="//upload.wikimedia.org/wikipedia/commons/thumb/d/df/Impaired_Securities.GIF/450px-Impaired_Securities.GIF" decoding="async" width="450" height="387" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/d/df/Impaired_Securities.GIF 1.5x" data-file-width="575" data-file-height="494" /></a><figcaption>More than half of the highest-rated (Aaa) CDOs were "impaired" (losing <a href="/wiki/Bond_(finance)#Principal" title="Bond (finance)">principal</a> or downgraded to junk status), compared to a small fraction of similarly rated Subprime and Alt-A mortgage-backed securities. (source: Financial Crisis Inquiry Report<sup id="cite_ref-impaired_65-0" class="reference"><a href="#cite_note-impaired-65"><span class="cite-bracket">[</span>65<span class="cite-bracket">]</span></a></sup>)</figcaption></figure> <p>In the summer of 2006, the <a href="/wiki/Case%E2%80%93Shiller_index" title="Case–Shiller index">Case–Shiller index</a> of house prices peaked.<sup id="cite_ref-66" class="reference"><a href="#cite_note-66"><span class="cite-bracket">[</span>66<span class="cite-bracket">]</span></a></sup> In California, home prices had more than doubled since 2000<sup id="cite_ref-FCIR-87_67-0" class="reference"><a href="#cite_note-FCIR-87-67"><span class="cite-bracket">[</span>67<span class="cite-bracket">]</span></a></sup> and median house prices in Los Angeles had risen to ten times the median annual income. To entice those with low and moderate income to sign up for mortgages, <a href="/wiki/Down_payment" title="Down payment">down payments</a> and <a href="/wiki/No_income,_no_asset" title="No income, no asset">income documentation</a> were often dispensed with and <a href="/wiki/Negative_amortization" title="Negative amortization">interest and principal payments were often deferred</a> upon request.<sup id="cite_ref-lewis-94_68-0" class="reference"><a href="#cite_note-lewis-94-68"><span class="cite-bracket">[</span>68<span class="cite-bracket">]</span></a></sup> Journalist <a href="/wiki/Michael_Lewis" title="Michael Lewis">Michael Lewis</a> gave as an example of unsustainable underwriting practices a loan in Bakersfield, California, where "a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house of $724,000".<sup id="cite_ref-lewis-94_68-1" class="reference"><a href="#cite_note-lewis-94-68"><span class="cite-bracket">[</span>68<span class="cite-bracket">]</span></a></sup> As two-year "<a href="/wiki/Introductory_rate#Teaser_rate" title="Introductory rate">teaser" mortgage rates</a>—common with those that made home purchases like this possible—expired, mortgage payments skyrocketed. Refinancing to lower mortgage payment was no longer available since it depended on rising home prices.<sup id="cite_ref-69" class="reference"><a href="#cite_note-69"><span class="cite-bracket">[</span>69<span class="cite-bracket">]</span></a></sup> Mezzanine tranches started to lose value in 2007; by mid year AA tranches were worth only 70 cents on the dollar. By October triple-A tranches had started to fall.<sup id="cite_ref-CDOh_70-0" class="reference"><a href="#cite_note-CDOh-70"><span class="cite-bracket">[</span>70<span class="cite-bracket">]</span></a></sup> Regional diversification notwithstanding, the mortgage backed securities turned out to be highly correlated.<sup id="cite_ref-FCIR-129_24-1" class="reference"><a href="#cite_note-FCIR-129-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup> </p><p>Big CDO arrangers like <a href="/wiki/Citigroup" title="Citigroup">Citigroup</a>, <a href="/wiki/Merrill_Lynch" class="mw-redirect" title="Merrill Lynch">Merrill Lynch</a> and <a href="/wiki/UBS" title="UBS">UBS</a> experienced some of the biggest losses, as did financial guaranteers such as <a href="/wiki/AIG" class="mw-redirect" title="AIG">AIG</a>, <a href="/wiki/Ambac" title="Ambac">Ambac</a>, <a href="/wiki/MBIA" title="MBIA">MBIA</a>.<sup id="cite_ref-FCIR-129_24-2" class="reference"><a href="#cite_note-FCIR-129-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup> </p><p>An early indicator of the crisis came in July 2007 when rating agencies made unprecedented mass downgrades of mortgage-related securities<sup id="cite_ref-71" class="reference"><a href="#cite_note-71"><span class="cite-bracket">[</span>71<span class="cite-bracket">]</span></a></sup> (by the end of 2008 91% of CDO securities were downgraded<sup id="cite_ref-FCIR-148_72-0" class="reference"><a href="#cite_note-FCIR-148-72"><span class="cite-bracket">[</span>72<span class="cite-bracket">]</span></a></sup>), and two highly leveraged <a href="/wiki/Bear_Stearns" title="Bear Stearns">Bear Stearns</a> hedge funds holding MBSs and CDOs collapsed. Investors were informed by Bear Stearns that they would get little if any of their money back.<sup id="cite_ref-73" class="reference"><a href="#cite_note-73"><span class="cite-bracket">[</span>73<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-74" class="reference"><a href="#cite_note-74"><span class="cite-bracket">[</span>74<span class="cite-bracket">]</span></a></sup> </p><p>In October and November the CEOs of <a href="/wiki/Merrill_Lynch" class="mw-redirect" title="Merrill Lynch">Merrill Lynch</a> and <a href="/wiki/Citigroup" title="Citigroup">Citigroup</a> resigned after reporting multibillion-dollar losses and CDO downgrades.<sup id="cite_ref-75" class="reference"><a href="#cite_note-75"><span class="cite-bracket">[</span>75<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-76" class="reference"><a href="#cite_note-76"><span class="cite-bracket">[</span>76<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-77" class="reference"><a href="#cite_note-77"><span class="cite-bracket">[</span>77<span class="cite-bracket">]</span></a></sup> As the global market for CDOs dried up<sup id="cite_ref-78" class="reference"><a href="#cite_note-78"><span class="cite-bracket">[</span>78<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-79" class="reference"><a href="#cite_note-79"><span class="cite-bracket">[</span>79<span class="cite-bracket">]</span></a></sup> the new issue pipeline for CDOs slowed significantly,<sup id="cite_ref-sifma_80-0" class="reference"><a href="#cite_note-sifma-80"><span class="cite-bracket">[</span>80<span class="cite-bracket">]</span></a></sup> and what CDO issuance there was usually in the form of <a href="/wiki/Collateralized_loan_obligation" title="Collateralized loan obligation">collateralized loan obligations</a> backed by middle-market or leveraged bank loans, rather than home mortgage ABS.<sup id="cite_ref-autogenerated2_81-0" class="reference"><a href="#cite_note-autogenerated2-81"><span class="cite-bracket">[</span>81<span class="cite-bracket">]</span></a></sup> The CDO collapse hurt mortgage credit available to homeowners since the bigger MBS market depended on CDO purchases of mezzanine tranches.<sup id="cite_ref-82" class="reference"><a href="#cite_note-82"><span class="cite-bracket">[</span>82<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-83" class="reference"><a href="#cite_note-83"><span class="cite-bracket">[</span>83<span class="cite-bracket">]</span></a></sup> </p><p>While non-prime mortgage defaults affected all securities backed by mortgages, CDOs were especially hard hit. More than half—$300 billion worth—of tranches issued in 2005, 2006, and 2007 rated most safe (triple-A) by rating agencies, were either downgraded to junk status or lost principal by 2009.<sup id="cite_ref-impaired_65-1" class="reference"><a href="#cite_note-impaired-65"><span class="cite-bracket">[</span>65<span class="cite-bracket">]</span></a></sup> In comparison, only small fractions of triple-A tranches of Alt-A or subprime mortgage-backed securities suffered the same fate. (See the Impaired Securities chart.) </p><p>Collateralized debt obligations also made up over half ($542 billion) of the nearly trillion dollars in losses suffered by financial institutions from 2007 to early 2009.<sup id="cite_ref-hart_46-1" class="reference"><a href="#cite_note-hart-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Criticism">Criticism</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=7" title="Edit section: Criticism"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Prior to the crisis, a few academics, analysts and investors such as <a href="/wiki/Warren_Buffett" title="Warren Buffett">Warren Buffett</a> (who famously disparaged CDOs and other derivatives as "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal"<sup id="cite_ref-84" class="reference"><a href="#cite_note-84"><span class="cite-bracket">[</span>84<span class="cite-bracket">]</span></a></sup>), and the <a href="/wiki/International_Monetary_Fund" title="International Monetary Fund">IMF</a>'s former chief economist <a href="/wiki/Raghuram_Rajan" title="Raghuram Rajan">Raghuram Rajan</a><sup id="cite_ref-85" class="reference"><a href="#cite_note-85"><span class="cite-bracket">[</span>85<span class="cite-bracket">]</span></a></sup> warned that rather than reducing risk through diversification, CDOs and other derivatives spread risk and uncertainty about the value of the underlying assets more widely.<sup id="cite_ref-86" class="reference"><a href="#cite_note-86"><span class="cite-bracket">[</span>86<span class="cite-bracket">]</span></a></sup> </p><p>During and after the crisis, criticism of the CDO market was more vocal. According to the radio documentary "Giant Pool of Money", it was the strong demand for MBS and CDO that drove down home lending standards. Mortgages were needed for collateral and by approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted.<sup id="cite_ref-giantpool_33-3" class="reference"><a href="#cite_note-giantpool-33"><span class="cite-bracket">[</span>33<span class="cite-bracket">]</span></a></sup> </p><p>The head of banking supervision and regulation at the Federal Reserve, Patrick Parkinson, termed "the whole concept of ABS CDOs", an "abomination".<sup id="cite_ref-FCIR-129_24-3" class="reference"><a href="#cite_note-FCIR-129-24"><span class="cite-bracket">[</span>24<span class="cite-bracket">]</span></a></sup> </p><p>In December 2007, journalists Carrick Mollenkamp and Serena Ng wrote of a CDO called Norma created by Merrill Lynch at the behest of Illinois hedge fund, Magnetar. It was a tailor-made bet on subprime mortgages that went "too far." Janet Tavakoli, a Chicago consultant who specializes in CDOs, said Norma "is a tangled hairball of risk." When it came to market in March 2007, "any savvy investor would have thrown this...in the trash bin."<sup id="cite_ref-87" class="reference"><a href="#cite_note-87"><span class="cite-bracket">[</span>87<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-88" class="reference"><a href="#cite_note-88"><span class="cite-bracket">[</span>88<span class="cite-bracket">]</span></a></sup> </p><p>According to journalists Bethany McLean and Joe Nocera, no securities became "more pervasive – or [did] more damage than collateralized debt obligations" to create the <a href="/wiki/Great_Recession" title="Great Recession">Great Recession</a>.<sup id="cite_ref-Nocera,_p.120_26-1" class="reference"><a href="#cite_note-Nocera,_p.120-26"><span class="cite-bracket">[</span>26<span class="cite-bracket">]</span></a></sup> </p><p>Gretchen Morgenson described the securities as "a sort of secret refuse heap for toxic mortgages [that] created even more demand for bad loans from wanton lenders." </p> <blockquote><p>CDOs prolonged the mania, vastly amplifying the losses that investors would suffer and ballooning the amounts of taxpayer money that would be required to rescue companies like Citigroup and the American International Group." ...<sup id="cite_ref-89" class="reference"><a href="#cite_note-89"><span class="cite-bracket">[</span>89<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>In the first quarter of 2008 alone, <a href="/wiki/Credit_rating_agency" title="Credit rating agency">credit rating agencies</a> announced 4,485 downgrades of CDOs.<sup id="cite_ref-autogenerated2_81-1" class="reference"><a href="#cite_note-autogenerated2-81"><span class="cite-bracket">[</span>81<span class="cite-bracket">]</span></a></sup> At least some analysts complained the agencies over-relied on computer models with imprecise inputs, failed to account adequately for large risks (like a nationwide collapse of housing values), and assumed the risk of the low rated tranches that made up CDOs would be diluted when in fact the mortgage risks were highly correlated, and when one mortgage defaulted, many did, affected by the same financial events.<sup id="cite_ref-hart_46-2" class="reference"><a href="#cite_note-hart-46"><span class="cite-bracket">[</span>46<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-90" class="reference"><a href="#cite_note-90"><span class="cite-bracket">[</span>90<span class="cite-bracket">]</span></a></sup> </p><p>They were strongly criticized by economist <a href="/wiki/Joseph_Stiglitz" title="Joseph Stiglitz">Joseph Stiglitz</a>, among others. Stiglitz considered the agencies "one of the key culprits" of the crisis that "performed that alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies."<sup id="cite_ref-91" class="reference"><a href="#cite_note-91"><span class="cite-bracket">[</span>91<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-bloomberg.com_92-0" class="reference"><a href="#cite_note-bloomberg.com-92"><span class="cite-bracket">[</span>92<span class="cite-bracket">]</span></a></sup> According to Morgenson, the agencies had pretended to transform "dross into gold."<sup id="cite_ref-reckless-280_58-1" class="reference"><a href="#cite_note-reckless-280-58"><span class="cite-bracket">[</span>58<span class="cite-bracket">]</span></a></sup> </p> <blockquote><p>"As usual, the ratings agencies were chronically behind on developments in the financial markets and they could barely keep up with the new instruments springing from the brains of Wall Street's rocket scientists. Fitch, Moody's, and S&P paid their analysts far less than the big brokerage firms did and, not surprisingly wound up employing people who were often looking to befriend, accommodate, and impress the Wall Street clients in hopes of getting hired by them for a multiple increase in pay. ... Their [the rating agencies] failure to recognize that mortgage underwriting standards had decayed or to account for the possibility that real estate prices could decline completely undermined the ratings agencies' models and undercut their ability to estimate losses that these securities might generate."<sup id="cite_ref-93" class="reference"><a href="#cite_note-93"><span class="cite-bracket">[</span>93<span class="cite-bracket">]</span></a></sup></p></blockquote> <p>Michael Lewis also pronounced the transformation of BBB tranches into 80% triple A CDOs as "dishonest", "artificial" and the result of "fat fees" paid to rating agencies by Goldman Sachs and other Wall Street firms.<sup id="cite_ref-big_94-0" class="reference"><a href="#cite_note-big-94"><span class="cite-bracket">[</span>94<span class="cite-bracket">]</span></a></sup> However, if the collateral had been sufficient, those ratings would have been correct, according to the FDIC. </p><p>Synthetic CDOs were criticized in particular, because of the difficulties to judge (and price) the risk inherent in that kind of securities correctly. That adverse effect roots in the pooling and tranching activities on every level of the derivation.<sup id="cite_ref-ssrn.com_6-1" class="reference"><a href="#cite_note-ssrn.com-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> </p><p>Others pointed out the risk of undoing the connection between borrowers and lenders—removing the lender's incentive to only pick borrowers who were creditworthy—inherent in all securitization.<sup id="cite_ref-95" class="reference"><a href="#cite_note-95"><span class="cite-bracket">[</span>95<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-96" class="reference"><a href="#cite_note-96"><span class="cite-bracket">[</span>96<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-97" class="reference"><a href="#cite_note-97"><span class="cite-bracket">[</span>97<span class="cite-bracket">]</span></a></sup> According to economist <a href="/wiki/Mark_Zandi" title="Mark Zandi">Mark Zandi</a>: "As shaky mortgages were combined, diluting any problems into a larger pool, the <a href="/wiki/Moral_hazard" title="Moral hazard">incentive for responsibility</a> was undermined."<sup id="cite_ref-Zandi_2009_35-1" class="reference"><a href="#cite_note-Zandi_2009-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup> </p><p>Zandi and others also criticized lack of regulation. "Finance companies weren't subject to the same regulatory oversight as banks. Taxpayers weren't on the hook if they went belly up [pre-crisis], only their shareholders and other creditors were. Finance companies thus had little to discourage them from growing as aggressively as possible, even if that meant lowering or winking at traditional lending standards."<sup id="cite_ref-Zandi_2009_35-2" class="reference"><a href="#cite_note-Zandi_2009-35"><span class="cite-bracket">[</span>35<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading2"><h2 id="Concept,_structures,_varieties"><span id="Concept.2C_structures.2C_varieties"></span>Concept, structures, varieties</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=8" title="Edit section: Concept, structures, varieties"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Concept">Concept</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=9" title="Edit section: Concept"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>CDOs vary in structure and underlying assets, but the basic principle is the same. A CDO is a type of <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed security</a>. To create a CDO, a <a href="/wiki/Corporation" title="Corporation">corporate entity</a> is constructed to hold assets as <a href="/wiki/Collateral_(finance)" title="Collateral (finance)">collateral</a> backing packages of <a href="/wiki/Cash_flow" title="Cash flow">cash flows</a> which are sold to investors.<sup id="cite_ref-98" class="reference"><a href="#cite_note-98"><span class="cite-bracket">[</span>98<span class="cite-bracket">]</span></a></sup> A sequence in constructing a CDO is: </p> <ul><li>A <a href="/wiki/Special_purpose_entity" class="mw-redirect" title="Special purpose entity">special purpose entity</a> (SPE) is designed/constructed to acquire a <a href="/wiki/Portfolio_(finance)" title="Portfolio (finance)">portfolio</a> of underlying assets. Common underlying <a href="/wiki/Assets" class="mw-redirect" title="Assets">assets</a> held may include <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>, commercial real estate bonds and corporate loans.</li> <li>The SPE issues <a href="/wiki/Bond_(finance)" title="Bond (finance)">bonds</a> to investors in exchange for cash, which are used to purchase the portfolio of underlying assets. Like other ABS private label securities, the bonds are not uniform but issued in layers called tranches, each with different risk characteristics. Senior tranches are paid from the cash flows from the underlying assets before the junior tranches and equity tranches. Losses are first borne by the equity tranches, next by the junior tranches, and finally by the senior tranches.<sup id="cite_ref-99" class="reference"><a href="#cite_note-99"><span class="cite-bracket">[</span>99<span class="cite-bracket">]</span></a></sup></li></ul> <p>A common analogy compares the cash flow from the CDO's portfolio of securities (say mortgage payments from mortgage-backed bonds) to water flowing into cups of the investors where senior tranches were filled first and overflowing cash flowed to junior tranches, then equity tranches. If a large portion of the mortgages enter default, there is insufficient cash flow to fill all these cups and equity tranche investors face the losses first. </p><p>The risk and return for a CDO investor depends both on how the tranches are defined, and on the underlying assets. In particular, the investment depends on the assumptions and methods used to define the risk and return of the tranches.<sup id="cite_ref-100" class="reference"><a href="#cite_note-100"><span class="cite-bracket">[</span>100<span class="cite-bracket">]</span></a></sup> CDOs, like all <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed securities</a>, enable the originators of the underlying assets to pass credit risk to another institution or to individual investors. Thus investors must understand how the risk for CDOs is calculated. </p><p>The issuer of the CDO, typically an investment bank, earns a commission at the time of issue and earns management fees during the life of the CDO. The ability to earn substantial fees from originating CDOs, coupled with the absence of any residual liability, skews the incentives of originators in favor of loan volume rather than loan quality. </p><p>In some cases, the assets held by one CDO consisted entirely of equity layer tranches issued by other CDOs. This explains why some CDOs became entirely worthless, as the equity layer tranches were paid last in the sequence and there was not sufficient cash flow from the underlying subprime mortgages (many of which defaulted) to trickle down to the equity layers. </p><p>Ultimately the challenge is in accurately quantifying the risk and return characteristics of these constructs. Since the introduction of David Li's 2001 model, there have been material advances in techniques that more accurately model dynamics for these complex securities.<sup id="cite_ref-101" class="reference"><a href="#cite_note-101"><span class="cite-bracket">[</span>101<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Structures">Structures</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=10" title="Edit section: Structures"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>CDO refers to several different types of products. The primary classifications are as follows: </p> <dl><dt>Source of funds—cash flow vs. market value</dt></dl> <ul><li><i>Cash flow CDOs</i> pay interest and principal to tranche holders using the cash flows produced by the CDO's assets. Cash flow CDOs focus primarily on managing the credit quality of the underlying portfolio.</li> <li><i>Market value CDOs</i> attempt to enhance investor returns through the more frequent trading and profitable sale of collateral assets. The CDO asset manager seeks to realize capital gains on the assets in the CDO's portfolio. There is greater focus on the changes in market value of the CDO's assets. Market value CDOs are longer-established, but less common than cash flow CDOs.</li></ul> <dl><dt>Motivation—arbitrage vs. balance sheet</dt></dl> <ul><li><i>Arbitrage transactions</i> (cash flow and market value) attempt to capture for equity investors the spread between the relatively high yielding assets and the lower yielding liabilities represented by the rated bonds. The majority, 86%, of CDOs are arbitrage-motivated.<sup id="cite_ref-102" class="reference"><a href="#cite_note-102"><span class="cite-bracket">[</span>102<span class="cite-bracket">]</span></a></sup></li> <li><i>Balance sheet transactions</i>, by contrast, are primarily motivated by the issuing institutions' desire to remove loans and other assets from their balance sheets, to reduce their regulatory <a href="/wiki/Capital_requirements" class="mw-redirect" title="Capital requirements">capital requirements</a> and improve their return on risk capital. A bank may wish to offload the credit risk to reduce its balance sheet's credit risk.</li></ul> <dl><dt>Funding—cash vs. synthetic</dt></dl> <ul><li><i>Cash CDOs</i> involve a portfolio of cash assets, such as loans, <a href="/wiki/Corporate_bond" title="Corporate bond">corporate bonds</a>, <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed securities</a> or <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>. Ownership of the assets is transferred to the legal entity (known as a special purpose vehicle) issuing the CDO's tranches. The risk of loss on the assets is divided among tranches in reverse order of seniority. Cash CDO issuance exceeded $400 billion in 2006.</li> <li><i>Synthetic CDOs</i> do not own cash assets like bonds or loans. Instead, <a href="/wiki/Synthetic_CDO" title="Synthetic CDO">synthetic CDOs</a> gain credit exposure to a portfolio of fixed income assets without owning those assets through the use of <a href="/wiki/Credit_default_swap" title="Credit default swap">credit default swaps</a>, a derivatives instrument. (Under such a swap, the credit protection seller, the Synthetic CDO, receives periodic cash payments, called premiums, in exchange for agreeing to assume the risk of loss on a specific asset in the event that asset experiences a default or other <a href="/wiki/Credit_event" title="Credit event">credit event</a>.) Like a cash CDO, the risk of loss on the Synthetic CDO's portfolio is divided into tranches. Losses will first affect the equity tranche, next the junior tranches, and finally the senior tranche. Each tranche receives a periodic payment (the swap premium), with the junior tranches offering higher premiums. <ul><li>A synthetic CDO tranche may be either funded or unfunded. Under the swap agreements, the CDO could have to pay up to a certain amount of money in the event of a credit event on the reference obligations in the CDO's reference portfolio. Some of this credit exposure is funded at the time of investment by the investors in funded tranches. Typically, the junior tranches that face the greatest risk of experiencing a loss have to fund at closing. Until a credit event occurs, the proceeds provided by the funded tranches are often invested in high-quality, liquid assets or placed in a GIC (<a href="/wiki/Guaranteed_Investment_Contract" class="mw-redirect" title="Guaranteed Investment Contract">Guaranteed Investment Contract</a>) account that offers a return that is a few basis points below <a href="/wiki/LIBOR" class="mw-redirect" title="LIBOR">LIBOR</a>. The return from these investments plus the premium from the swap counterparty provide the cash flow stream to pay interest to the funded tranches. When a credit event occurs and a payout to the swap counterparty is required, the required payment is made from the GIC or reserve account that holds the liquid investments. In contrast, senior tranches are usually unfunded as the risk of loss is much lower. Unlike a cash CDO, investors in a senior tranche receive periodic payments but do not place any capital in the CDO when entering into the investment. Instead, the investors retain continuing funding exposure and may have to make a payment to the CDO in the event the portfolio's losses reach the senior tranche. Funded synthetic issuance exceeded $80 billion in 2006. From an issuance perspective, synthetic CDOs take less time to create. Cash assets do not have to be purchased and managed, and the CDO's tranches can be precisely structured.</li></ul></li> <li><i>Hybrid CDOs</i> have a portfolio including both cash assets—like cash CDOs—and swaps that give the CDO credit exposure to additional assets—like a synthetic CDO. A portion of the proceeds from the funded tranches is invested in cash assets and the remainder is held in reserve to cover payments that may be required under the credit default swaps. The CDO receives payments from three sources: the return from the cash assets, the GIC or reserve account investments, and the CDO premiums.</li></ul> <dl><dt>Single-tranche CDOs</dt> <dd>The flexibility of credit default swaps is used to construct Single Tranche CDOs (bespoke tranche CDOs) where the entire CDO is structured specifically for a single or small group of investors, and the remaining tranches are never sold but held by the dealer based on valuations from internal models. Residual risk is <a href="/wiki/Delta_neutral#Creating_the_position" title="Delta neutral">delta-hedged</a> by the dealer.</dd></dl> <dl><dt>Structured Operating Companies</dt> <dd>Unlike CDOs, which are terminating structures that typically wind-down or refinance at the end of their financing term, Structured Operating Companies are permanently capitalized variants of CDOs, with an active management team and infrastructure. They often issue term notes, <a href="/wiki/Commercial_paper" title="Commercial paper">commercial paper</a>, and/or <a href="/wiki/Auction_rate_security" title="Auction rate security">auction rate securities</a>, depending upon the structural and portfolio characteristics of the company. <a href="/wiki/Credit_Derivative_Products_Company" class="mw-redirect" title="Credit Derivative Products Company">Credit Derivative Products Companies</a> (CDPC) and <a href="/wiki/Structured_investment_vehicle" title="Structured investment vehicle">Structured Investment Vehicles</a> (SIV) are examples, with CDPC taking risk synthetically and SIV with predominantly 'cash' exposure.</dd></dl> <div class="mw-heading mw-heading3"><h3 id="Taxation">Taxation</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=11" title="Edit section: Taxation"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The issuer of a CDO—usually a special purpose entity—is typically a corporation established outside the United States to avoid being subject to U.S. federal income taxation on its global income. These corporations must restrict their activities to avoid U.S. tax liabilities; corporations that are deemed to engage in trade or business in the U.S. will be subject to federal taxation.<sup id="cite_ref-103" class="reference"><a href="#cite_note-103"><span class="cite-bracket">[</span>103<span class="cite-bracket">]</span></a></sup> Foreign corporations that only invest in and hold portfolios of U.S. stock and debt securities are not. Investing, unlike trading or dealing, is not considered to be a trade or business, regardless of its volume or frequency.<sup id="cite_ref-104" class="reference"><a href="#cite_note-104"><span class="cite-bracket">[</span>104<span class="cite-bracket">]</span></a></sup> </p><p>In addition, a safe harbor protects CDO issuers that do trade actively in securities, even though trading in securities technically is a business, provided the issuer's activities do not cause it to be viewed as a dealer in securities or engaged in a banking, lending or similar businesses.<sup id="cite_ref-105" class="reference"><a href="#cite_note-105"><span class="cite-bracket">[</span>105<span class="cite-bracket">]</span></a></sup> </p><p>CDOs are generally taxable as debt instruments except for the most junior class of CDOs which are treated as equity and are subject to special rules (such as PFIC and CFC reporting). The PFIC and CFC reporting is very complex and requires a specialized accountant to perform these calculations and manage the tax reporting obligations. </p> <div class="mw-heading mw-heading3"><h3 id="Types">Types</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=12" title="Edit section: Types"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p><b>A) Based on the underlying asset:</b> </p> <ul><li><a href="/wiki/Collateralized_loan_obligation" title="Collateralized loan obligation">Collateralized loan obligations</a> (CLOs): CDOs backed primarily by leveraged bank loans.</li> <li><a href="/w/index.php?title=Collateralized_bond_obligation&action=edit&redlink=1" class="new" title="Collateralized bond obligation (page does not exist)">Collateralized bond obligations</a> (CBOs): CDOs backed primarily by leveraged <a href="/wiki/Fixed_income" title="Fixed income">fixed income</a> securities.</li> <li>Collateralized synthetic obligations (CSOs): CDOs backed primarily by <a href="/wiki/Credit_derivative" title="Credit derivative">credit derivatives</a>.</li> <li>Structured finance CDOs (SFCDOs): CDOs backed primarily by structured products (such as <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed securities</a> and mortgage-backed securities).<sup id="cite_ref-marketplace1_106-0" class="reference"><a href="#cite_note-marketplace1-106"><span class="cite-bracket">[</span>106<span class="cite-bracket">]</span></a></sup></li></ul> <p><b>B) Other types of CDOs by assets/collateral include:</b> </p> <ul><li>Commercial Real Estate CDOs (CRE CDOs): backed primarily by commercial real estate assets</li> <li><a href="/w/index.php?title=Collateralized_Bond_Obligation&action=edit&redlink=1" class="new" title="Collateralized Bond Obligation (page does not exist)">Collateralized bond obligations</a> (CBOs): CDOs backed primarily by corporate bonds</li> <li>Collateralized Insurance Obligations (CIOs): backed by insurance or, more usually, reinsurance contracts</li> <li><a href="/wiki/CDO-Squared" title="CDO-Squared">CDO-Squared</a>: CDOs backed primarily by the tranches issued by other CDOs.<sup id="cite_ref-marketplace1_106-1" class="reference"><a href="#cite_note-marketplace1-106"><span class="cite-bracket">[</span>106<span class="cite-bracket">]</span></a></sup></li> <li><a href="/w/index.php?title=CDO%5En&action=edit&redlink=1" class="new" title="CDO^n (page does not exist)">CDO^n</a>: Generic term for CDO<sup>3</sup> (<a href="/w/index.php?title=CDO_cubed&action=edit&redlink=1" class="new" title="CDO cubed (page does not exist)">CDO cubed</a>) and higher, where the CDO is backed by other CDOs/CDO<sup>2</sup>/CDO<sup>3</sup>. These are particularly difficult vehicles to model because of the possible repetition of exposures in the underlying CDO.</li> <li>Intellectual Property Collateralized Debt Obligations (<a href="/wiki/Intangible_asset_finance" title="Intangible asset finance">IP CDOs</a>): backed by Intellectual Property</li></ul> <div class="mw-heading mw-heading3"><h3 id="Types_of_collateral">Types of collateral</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=13" title="Edit section: Types of collateral"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The collateral for cash CDOs include: </p> <ul><li><a href="/wiki/Structured_finance" title="Structured finance">Structured finance</a> securities (<a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>, home equity <a href="/wiki/Asset-backed_security" title="Asset-backed security">asset-backed securities</a>, <a href="/wiki/Commercial_mortgage-backed_security" title="Commercial mortgage-backed security">commercial mortgage-backed securities</a>)</li> <li><a href="/wiki/Leverage_(finance)" title="Leverage (finance)">Leveraged loans</a></li> <li><a href="/wiki/Corporate_bond" title="Corporate bond">Corporate bonds</a></li> <li><a href="/wiki/Real_estate_investment_trust" title="Real estate investment trust">Real estate investment trust</a> (REIT) debt</li> <li>Commercial real estate mortgage debt (including whole loans, B notes, and Mezzanine debt)</li> <li>Project finance debt</li> <li>Trust Preferred securities</li> <li><a href="/wiki/Intellectual_property" title="Intellectual property">Intellectual Property</a></li></ul> <div class="mw-heading mw-heading3"><h3 id="Transaction_participants">Transaction participants</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=14" title="Edit section: Transaction participants"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Participants in a CDO transaction include investors, the underwriter, the asset manager, the trustee and collateral administrator, accountants and attorneys. Beginning in 1999, the <a href="/wiki/Gramm-Leach-Bliley_Act" class="mw-redirect" title="Gramm-Leach-Bliley Act">Gramm-Leach-Bliley Act</a> allowed banks to also participate. </p> <div class="mw-heading mw-heading4"><h4 id="Investors">Investors</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=15" title="Edit section: Investors"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Investors—buyers of CDO—include <a href="/wiki/Insurance_company" class="mw-redirect" title="Insurance company">insurance companies</a>, <a href="/wiki/Mutual_fund" title="Mutual fund">mutual fund</a> companies, <a href="/wiki/Unit_trust" title="Unit trust">unit trusts</a>, <a href="/wiki/Investment_trust" title="Investment trust">investment trusts</a>, <a href="/wiki/Commercial_bank" title="Commercial bank">commercial banks</a>, <a href="/wiki/Investment_bank" class="mw-redirect" title="Investment bank">investment banks</a>, <a href="/wiki/Pension_fund" title="Pension fund">pension fund</a> managers, <a href="/wiki/Private_banking" title="Private banking">private banking</a> organizations, other CDOs and <a href="/wiki/Structured_investment_vehicle" title="Structured investment vehicle">structured investment vehicles</a>. Investors have different motivations for purchasing CDO securities depending on which tranche they select. At the more senior levels of debt, investors are able to obtain better yields than those that are available on more traditional securities (e.g., corporate bonds) of a similar rating. In some cases, investors utilize leverage and hope to profit from the excess of the spread offered by the senior tranche and their cost of borrowing. This is true because senior tranches pay a spread above LIBOR despite their AAA-ratings. Investors also benefit from the diversification of the CDO portfolio, the expertise of the asset manager, and the credit support built into the transaction. Investors include banks and insurance companies as well as investment funds. </p><p>Junior tranche investors achieve a leveraged, non-recourse investment in the underlying diversified collateral portfolio. Mezzanine notes and equity notes offer yields that are not available in most other fixed income securities. Investors include hedge funds, banks, and wealthy individuals. </p> <div class="mw-heading mw-heading4"><h4 id="Underwriter">Underwriter</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=16" title="Edit section: Underwriter"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The <a href="/wiki/Underwriting" title="Underwriting">underwriter</a> of a CDO is typically an <a href="/wiki/Investment_bank" class="mw-redirect" title="Investment bank">investment bank</a>, and acts as the structurer and arranger. Working with the asset management firm that selects the CDO's portfolio, the underwriter structures debt and equity tranches. This includes selecting the debt-to-equity ratio, sizing each tranche, establishing coverage and collateral quality tests, and working with the credit rating agencies to gain the desired ratings for each debt tranche. </p><p>The key economic consideration for an underwriter that is considering bringing a new deal to market is whether the transaction can offer a sufficient return to the equity noteholders. Such a determination requires estimating the after-default return offered by the portfolio of debt securities and comparing it to the cost of funding the CDO's rated notes. The excess spread must be large enough to offer the potential of attractive IRRs to the equity holders. </p><p>Other underwriter responsibilities include working with a law firm and creating the special purpose legal vehicle (typically a trust incorporated in the <a href="/wiki/Cayman_Islands" title="Cayman Islands">Cayman Islands</a>) that will purchase the assets and issue the CDO's tranches. In addition, the underwriter will work with the asset manager to determine the post-closing trading restrictions that will be included in the CDO's transaction documents and other files. </p><p>The final step is to price the CDO (i.e., set the coupons for each debt tranche) and place the tranches with investors. The priority in placement is finding investors for the risky equity tranche and junior debt tranches (A, BBB, etc.) of the CDO. It is common for the asset manager to retain a piece of the equity tranche. In addition, the underwriter was generally expected to provide some type of secondary market liquidity for the CDO, especially its more senior tranches. </p><p>According to <a href="/wiki/Thomson_Financial" title="Thomson Financial">Thomson Financial</a>, the top underwriters before September 2008 were <a href="/wiki/Bear_Stearns" title="Bear Stearns">Bear Stearns</a>, <a href="/wiki/Merrill_Lynch" class="mw-redirect" title="Merrill Lynch">Merrill Lynch</a>, <a href="/wiki/Wachovia" title="Wachovia">Wachovia</a>, <a href="/wiki/Citigroup" title="Citigroup">Citigroup</a>, <a href="/wiki/Deutsche_Bank" title="Deutsche Bank">Deutsche Bank</a>, and <a href="/wiki/Bank_of_America" title="Bank of America">Bank of America Securities</a>.<sup id="cite_ref-dealbook_107-0" class="reference"><a href="#cite_note-dealbook-107"><span class="cite-bracket">[</span>107<span class="cite-bracket">]</span></a></sup> CDOs are more profitable for underwriters than conventional bond underwriting because of the complexity involved. The underwriter is paid a fee when the CDO is issued. </p> <div class="mw-heading mw-heading4"><h4 id="The_asset_manager">The asset manager</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=17" title="Edit section: The asset manager"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The asset manager plays a key role in each CDO transaction, even after the CDO is issued. An experienced manager is critical in both the construction and maintenance of the CDO's portfolio. The manager can maintain the credit quality of a CDO's portfolio through trades as well as maximize recovery rates when defaults on the underlying assets occur. </p><p>In theory, the asset manager should add value in the manner outlined below, although in practice, this did not occur during the credit bubble of the mid-2000s (decade). In addition, it is now understood that the structural flaw in all asset-backed securities (originators profit from loan volume not loan quality) make the roles of subsequent participants peripheral to the quality of the investment. </p><p>The asset manager's role begins in the months before a CDO is issued, a bank usually provides financing to the manager to purchase some of the collateral assets for the forthcoming CDO. This process is called warehousing. </p><p>Even by the issuance date, the asset manager often will not have completed the construction of the CDO's portfolio. A "ramp-up" period following issuance during which the remaining assets are purchased can extend for several months after the CDO is issued. For this reason, some senior CDO notes are structured as delayed drawdown notes, allowing the asset manager to draw down cash from investors as collateral purchases are made. When a transaction is fully ramped, its initial portfolio of credits has been selected by the asset manager. </p><p>However, the asset manager's role continues even after the ramp-up period ends, albeit in a less active role. During the CDO's "reinvestment period", which usually extends several years past the issuance date of the CDO, the asset manager is authorized to reinvest principal proceeds by purchasing additional debt securities. Within the confines of the trading restrictions specified in the CDO's transaction documents, the asset manager can also make trades to maintain the credit quality of the CDO's portfolio. The manager also has a role in the redemption of a CDO's notes by auction call. </p><p>There are approximately 300 asset managers in the marketplace. CDO asset managers, as with other asset managers, can be more or less active depending on the personality and prospectus of the CDO. Asset managers make money by virtue of the senior fee (which is paid before any of the CDO investors are paid) and subordinated fee as well as any equity investment the manager has in the CDO, making CDOs a lucrative business for asset managers. These fees, together with underwriting fees, administration—approx 1.5 – 2% —by virtue of capital structure are provided by the equity investment, by virtue of reduced cash flow. </p> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">See also: <a href="/wiki/List_of_CDO_Managers" class="mw-redirect" title="List of CDO Managers">List of CDO Managers</a></div> <div class="mw-heading mw-heading4"><h4 id="The_trustee_and_collateral_administrator">The trustee and collateral administrator</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=18" title="Edit section: The trustee and collateral administrator"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The trustee holds title to the assets of the CDO for the benefit of the "noteholders" (i.e., the investors). In the CDO market, the trustee also typically serves as collateral administrator. In this role, the collateral administrator produces and distributes noteholder reports, performs various compliance tests regarding the composition and liquidity of the asset portfolios in addition to constructing and executing the priority of payment waterfall models.<sup id="cite_ref-108" class="reference"><a href="#cite_note-108"><span class="cite-bracket">[</span>108<span class="cite-bracket">]</span></a></sup> In contrast to the asset manager, there are relatively few trustees in the marketplace. The following institutions offer trustee services in the CDO marketplace: </p> <ul><li><a href="/wiki/Bank_of_New_York_Mellon" class="mw-redirect" title="Bank of New York Mellon">Bank of New York Mellon</a> (note: the Bank of New York Mellon acquired the corporate trust unit of <a href="/wiki/JP_Morgan" class="mw-redirect" title="JP Morgan">JP Morgan</a>),</li> <li><a href="/wiki/BNP_Paribas" title="BNP Paribas">BNP Paribas</a> Securities Services (note: currently serves the European market only)</li> <li><a href="/wiki/Citibank" title="Citibank">Citibank</a></li> <li><a href="/wiki/Deutsche_Bank" title="Deutsche Bank">Deutsche Bank</a></li> <li><a href="/wiki/Equity_Trust" class="mw-redirect" title="Equity Trust">Equity Trust</a></li> <li><a href="/wiki/Intertrust_Group" title="Intertrust Group">Intertrust Group</a> (note: until mid-2009 was known as Fortis Intertrust; Acquired ATC Capital Markets in 2013)</li> <li><a href="/wiki/HSBC" title="HSBC">HSBC</a></li> <li><a href="/w/index.php?title=Sanne_Trust&action=edit&redlink=1" class="new" title="Sanne Trust (page does not exist)">Sanne Trust</a></li> <li><a href="/wiki/State_Street_Corporation" title="State Street Corporation">State Street Corporation</a></li> <li><a href="/wiki/US_Bank" class="mw-redirect" title="US Bank">US Bank</a> (note: US Bank acquired the corporate trust unit of <a href="/wiki/Wachovia" title="Wachovia">Wachovia</a> in 2008 and Bank of America in September 2011, which had previously acquired LaSalle Bank in 2010, and is the current market share leader)</li> <li><a href="/wiki/Wells_Fargo" title="Wells Fargo">Wells Fargo</a></li> <li><a href="/wiki/Wilmington_Trust" title="Wilmington Trust">Wilmington Trust</a>: Wilmington shut down their business in early 2009.</li></ul> <div class="mw-heading mw-heading4"><h4 id="Accountants">Accountants</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=19" title="Edit section: Accountants"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The underwriter typically will hire an accounting firm to perform due diligence on the CDO's portfolio of debt securities. This entails verifying certain attributes, such as credit rating and coupon/spread, of each collateral security. Source documents or public sources will typically be used to tie-out the collateral pool information. In addition, the accountants typically calculate certain collateral tests and determine whether the portfolio is in compliance with such tests. </p><p>The firm may also perform a cash flow tie-out in which the transaction's waterfall is modeled per the priority of payments set forth in the transaction documents. The yield and weighted average life of the bonds or equity notes being issued is then calculated based on the modeling assumptions provided by the underwriter. On each payment date, an accounting firm may work with the trustee to verify the distributions that are scheduled to be made to the noteholders. </p> <div class="mw-heading mw-heading4"><h4 id="Attorneys">Attorneys</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=20" title="Edit section: Attorneys"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Attorneys ensure compliance with applicable securities law and negotiate and draft the transaction documents. Attorneys will also draft an offering document or prospectus the purpose of which is to satisfy statutory requirements to disclose certain information to investors. This will be circulated to investors. It is common for multiple counsels to be involved in a single deal because of the number of parties to a single CDO from asset management firms to underwriters. </p> <div class="mw-heading mw-heading2"><h2 id="In_popular_media">In popular media</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=21" title="Edit section: In popular media"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>In the 2015 biographical film <a href="/wiki/The_Big_Short_(film)" title="The Big Short (film)"><i>The Big Short</i></a>, CDOs of <a href="/wiki/Mortgage-backed_securities" class="mw-redirect" title="Mortgage-backed securities">mortgage-backed securities</a> are described metaphorically as "dog shit wrapped in cat shit".<sup id="cite_ref-109" class="reference"><a href="#cite_note-109"><span class="cite-bracket">[</span>109<span class="cite-bracket">]</span></a></sup><sup class="noprint Inline-Template Template-Fact" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed"><span title="This claim needs references to reliable sources. (June 2024)">citation needed</span></a></i>]</sup> </p> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=22" title="Edit section: See also"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a href="/wiki/Asset-backed_security" title="Asset-backed security">Asset-backed security</a></li> <li><a href="/wiki/Bespoke_portfolio_(CDO)" title="Bespoke portfolio (CDO)">Bespoke portfolio (CDO)</a></li> <li><a href="/wiki/Collateralized_mortgage_obligation" title="Collateralized mortgage obligation">Collateralized mortgage obligation</a> (CMO)</li> <li><a href="/wiki/Collateralized_fund_obligation" title="Collateralized fund obligation">Collateralized fund obligation</a> (CFO)</li> <li><a href="/wiki/Collateralized_loan_obligation" title="Collateralized loan obligation">Collateralized loan obligation</a> (CLO)</li> <li><a href="/wiki/List_of_CDO_managers" title="List of CDO managers">List of CDO managers</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default swap</a></li> <li><a href="/wiki/Single-tranche_CDO" title="Single-tranche CDO">Single-tranche CDO</a></li> <li><a href="/wiki/Synthetic_CDO" title="Synthetic CDO">Synthetic CDO</a></li> <li><a href="/wiki/Great_Recession" title="Great Recession">Great Recession</a> <ul><li><a href="/wiki/United_States_housing_bubble" class="mw-redirect" title="United States housing bubble">United States housing bubble</a></li> <li><a href="/wiki/Subprime_mortgage_crisis" title="Subprime mortgage crisis">Subprime mortgage crisis</a></li> <li><a href="/wiki/Financial_crisis_of_2007%E2%80%932008" class="mw-redirect" title="Financial crisis of 2007–2008">Financial crisis of 2007–2008</a></li></ul></li></ul> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=23" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist .references{font-size:100%;margin-bottom:0;list-style-type:inherit}.mw-parser-output .reflist-columns-2{column-width:30em}.mw-parser-output .reflist-columns-3{column-width:25em}.mw-parser-output .reflist-columns{margin-top:0.3em}.mw-parser-output .reflist-columns ol{margin-top:0}.mw-parser-output .reflist-columns li{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .reflist-upper-alpha{list-style-type:upper-alpha}.mw-parser-output .reflist-upper-roman{list-style-type:upper-roman}.mw-parser-output .reflist-lower-alpha{list-style-type:lower-alpha}.mw-parser-output .reflist-lower-greek{list-style-type:lower-greek}.mw-parser-output .reflist-lower-roman{list-style-type:lower-roman}</style><div class="reflist reflist-columns references-column-width" style="column-width: 30em;"> <ol class="references"> <li id="cite_note-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-1">^</a></b></span> <span class="reference-text"><div class="poem"> <p>An "asset-backed security" is sometimes used as an umbrella term for a type of security backed by a pool of assets—including collateralized debt obligations and <a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">mortgage-backed securities</a>. Example: "A capital market in which <i>asset-backed securities</i> are issued and traded is composed of three main categories: ABS, MBS and CDOs" (italics added). Source: <style data-mw-deduplicate="TemplateStyles:r1238218222">.mw-parser-output cite.citation{font-style:inherit;word-wrap:break-word}.mw-parser-output .citation q{quotes:"\"""\"""'""'"}.mw-parser-output .citation:target{background-color:rgba(0,127,255,0.133)}.mw-parser-output .id-lock-free.id-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/6/65/Lock-green.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-limited.id-lock-limited a,.mw-parser-output .id-lock-registration.id-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/d/d6/Lock-gray-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-subscription.id-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/a/aa/Lock-red-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .cs1-ws-icon a{background:url("//upload.wikimedia.org/wikipedia/commons/4/4c/Wikisource-logo.svg")right 0.1em center/12px no-repeat}body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-free a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-limited a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-registration a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-subscription a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .cs1-ws-icon a{background-size:contain;padding:0 1em 0 0}.mw-parser-output .cs1-code{color:inherit;background:inherit;border:none;padding:inherit}.mw-parser-output .cs1-hidden-error{display:none;color:var(--color-error,#d33)}.mw-parser-output .cs1-visible-error{color:var(--color-error,#d33)}.mw-parser-output .cs1-maint{display:none;color:#085;margin-left:0.3em}.mw-parser-output .cs1-kern-left{padding-left:0.2em}.mw-parser-output .cs1-kern-right{padding-right:0.2em}.mw-parser-output .citation .mw-selflink{font-weight:inherit}@media screen{.mw-parser-output .cs1-format{font-size:95%}html.skin-theme-clientpref-night .mw-parser-output .cs1-maint{color:#18911f}}@media screen and (prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .cs1-maint{color:#18911f}}</style><cite id="CITEREFVink2007" class="citation web cs1">Vink, Dennis (August 2007). <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/10381/2/MPRA_paper_10381.pdf">"ABS, MBS and CDO compared: an empirical analysis"</a> <span class="cs1-format">(PDF)</span>. Munich Personal RePEc Archive<span class="reference-accessdate">. Retrieved <span class="nowrap">13 July</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=ABS%2C+MBS+and+CDO+compared%3A+an+empirical+analysis&rft.pub=Munich+Personal+RePEc+Archive&rft.date=2007-08&rft.aulast=Vink&rft.aufirst=Dennis&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F10381%2F2%2FMPRA_paper_10381.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span>.<br /> <br /> Other times it is used for a particular type of that security—one backed by consumer loans. Example: "As a rule of thumb, securitization issues backed by mortgages are called MBS, and securitization issues backed by debt obligations are called CDO, [and s]ecuritization issues backed by consumer-backed products—car loans, consumer loans and credit cards, among others—are called <i>ABS</i> ..." (italics added). Source: <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFVink2007" class="citation web cs1">Vink, Dennis (August 2007). <a rel="nofollow" class="external text" href="http://mpra.ub.uni-muenchen.de/10381/2/MPRA_paper_10381.pdf">"ABS, MBS and CDO compared: an empirical analysis"</a> <span class="cs1-format">(PDF)</span>. Munich Personal RePEc Archive<span class="reference-accessdate">. Retrieved <span class="nowrap">13 July</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=ABS%2C+MBS+and+CDO+compared%3A+an+empirical+analysis&rft.pub=Munich+Personal+RePEc+Archive&rft.date=2007-08&rft.aulast=Vink&rft.aufirst=Dennis&rft_id=http%3A%2F%2Fmpra.ub.uni-muenchen.de%2F10381%2F2%2FMPRA_paper_10381.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span><br /> <br /> See also: <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20180629101514/http://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=16&id=10#sthash.roSaSia3.dpuf">"What are Asset-Backed Securities?"</a>. SIFMA. Archived from <a rel="nofollow" class="external text" href="http://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=16&id=10#sthash.roSaSia3.dpuf">the original</a> on 29 June 2018<span class="reference-accessdate">. Retrieved <span class="nowrap">13 July</span> 2013</span>. <q>Asset-backed securities, called ABS, are bonds or notes backed by financial assets. Typically the assets consist of receivables other than mortgage loans, such as credit card receivables, auto loans, manufactured-housing contracts and home-equity loans.</q></cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=What+are+Asset-Backed+Securities%3F&rft.pub=SIFMA&rft_id=http%3A%2F%2Fwww.investinginbonds.com%2Flearnmore.asp%3Fcatid%3D5%26subcatid%3D16%26id%3D10%23sthash.roSaSia3.dpuf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span> </p> </div></span> </li> <li id="cite_note-Lepke_2013-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-Lepke_2013_2-0">^</a></b></span> <span class="reference-text">Lepke, Lins and Pi card, <i>Mortgage-Backed Securities</i>, §5:15 (Thomson West, 2014).</span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFCordell2012" class="citation web cs1">Cordell, Larry (May 2012). <a rel="nofollow" class="external text" href="https://philadelphiafed.org/-/media/research-and-data/publications/working-papers/2011/wp11-30R.pdf">"COLLATERAL DAMAGE: SIZING AND ASSESSING THE SUBPRIME CDO CRISIS"</a> <span class="cs1-format">(PDF)</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=COLLATERAL+DAMAGE%3A+SIZING+AND+ASSESSING+THE+SUBPRIME+CDO+CRISIS&rft.date=2012-05&rft.aulast=Cordell&rft.aufirst=Larry&rft_id=https%3A%2F%2Fphiladelphiafed.org%2F-%2Fmedia%2Fresearch-and-data%2Fpublications%2Fworking-papers%2F2011%2Fwp11-30R.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-4">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFAzad" class="citation web cs1">Azad, C. <a rel="nofollow" class="external text" href="https://www.investopedia.com/terms/c/cdo.asp">"Collateralized debt obligations (CDO)"</a>. <i>www.investopedia.com</i>. Investopedia<span class="reference-accessdate">. Retrieved <span class="nowrap">31 January</span> 2018</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=www.investopedia.com&rft.atitle=Collateralized+debt+obligations+%28CDO%29&rft.aulast=Azad&rft.aufirst=C&rft_id=https%3A%2F%2Fwww.investopedia.com%2Fterms%2Fc%2Fcdo.asp&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFKiff2004" class="citation web cs1">Kiff, John (November 2004). <a rel="nofollow" class="external text" href="https://www.bis.org/publ/work163.pdf">"CDO rating methodology: Some thoughts on model risk and its implications"</a> <span class="cs1-format">(PDF)</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=CDO+rating+methodology%3A+Some+thoughts+on+model+risk+and+its+implications&rft.date=2004-11&rft.aulast=Kiff&rft.aufirst=John&rft_id=https%3A%2F%2Fwww.bis.org%2Fpubl%2Fwork163.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-ssrn.com-6"><span class="mw-cite-backlink">^ <a href="#cite_ref-ssrn.com_6-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-ssrn.com_6-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFKoehler2011" class="citation journal cs1">Koehler, Christian (31 May 2011). "The Relationship between the Complexity of Financial Derivatives and Systemic Risk". <i>Working Paper</i>: 17. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511541">2511541</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Working+Paper&rft.atitle=The+Relationship+between+the+Complexity+of+Financial+Derivatives+and+Systemic+Risk&rft.pages=17&rft.date=2011-05-31&rft_id=https%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D2511541%23id-name%3DSSRN&rft.aulast=Koehler&rft.aufirst=Christian&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-7"><span class="mw-cite-backlink"><b><a href="#cite_ref-7">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFAzad" class="citation web cs1">Azad, C. <a rel="nofollow" class="external text" href="http://www.investinganswers.com/financial-dictionary/bonds/collateralized-debt-obligation-cdo-2123">"How CDOs work"</a>. <i>www.investinganswers.com</i>. Investing answers<span class="reference-accessdate">. Retrieved <span class="nowrap">31 January</span> 2018</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=www.investinganswers.com&rft.atitle=How+CDOs+work&rft.aulast=Azad&rft.aufirst=C&rft_id=http%3A%2F%2Fwww.investinganswers.com%2Ffinancial-dictionary%2Fbonds%2Fcollateralized-debt-obligation-cdo-2123&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-Lemke_2014-8"><span class="mw-cite-backlink">^ <a href="#cite_ref-Lemke_2014_8-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-Lemke_2014_8-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Lemke, Lins and Smith, <i>Regulation of Investment Companies</i> (Matthew Bender, 2014 ed.).</span> </li> <li id="cite_note-9"><span class="mw-cite-backlink"><b><a href="#cite_ref-9">^</a></b></span> <span class="reference-text">McLean, Bethany and Joe Nocera, <i>All the Devils Are Here, the Hidden History of the Financial Crisis</i>, Portfolio, Penguin, 2010, p. 120.</span> </li> <li id="cite_note-FCIR-p127-10"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-p127_10-0">^</a></b></span> <span class="reference-text"><i><a rel="nofollow" class="external text" href="https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf">Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States</a></i>, aka <i>The Financial Crisis Inquiry Report</i>, p.127</span> </li> <li id="cite_note-FCIR-130-11"><span class="mw-cite-backlink">^ <a href="#cite_ref-FCIR-130_11-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-FCIR-130_11-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-FCIR-130_11-2"><sup><i><b>c</b></i></sup></a> <a href="#cite_ref-FCIR-130_11-3"><sup><i><b>d</b></i></sup></a> <a href="#cite_ref-FCIR-130_11-4"><sup><i><b>e</b></i></sup></a></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 130.</span> </li> <li id="cite_note-FCIR-133-12"><span class="mw-cite-backlink">^ <a href="#cite_ref-FCIR-133_12-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-FCIR-133_12-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 133.</span> </li> <li id="cite_note-13"><span class="mw-cite-backlink"><b><a href="#cite_ref-13">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFLewis2010" class="citation book cs1">Lewis, Michael (2010). <i>The Big Short: Inside the Doomsday Machine</i>. England: Penguin Books. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9781846142574" title="Special:BookSources/9781846142574"><bdi>9781846142574</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=The+Big+Short%3A+Inside+the+Doomsday+Machine&rft.place=England&rft.pub=Penguin+Books&rft.date=2010&rft.isbn=9781846142574&rft.aulast=Lewis&rft.aufirst=Michael&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-14"><span class="mw-cite-backlink"><b><a href="#cite_ref-14">^</a></b></span> <span class="reference-text">McClean, Nocera, p. 7.</span> </li> <li id="cite_note-15"><span class="mw-cite-backlink"><b><a href="#cite_ref-15">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://www.answers.com/topic/freddie-mac-nyse-fre">History of Freddie Mac</a>.</span> </li> <li id="cite_note-16"><span class="mw-cite-backlink"><b><a href="#cite_ref-16">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20081218013346/http://www.dallasfed.org/news/ca/2005/05wallstreet_assets.pdf">"Asset Securitization Comptroller's Handbook"</a> <span class="cs1-format">(PDF)</span>. US Comptroller of the Currency Administrator of National Banks. November 1997. Archived from <a rel="nofollow" class="external text" href="http://www.dallasfed.org/news/ca/2005/05wallstreet_assets.pdf">the original</a> <span class="cs1-format">(PDF)</span> on 2008-12-18.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Asset+Securitization+Comptroller%27s+Handbook&rft.pub=US+Comptroller+of+the+Currency+Administrator+of+National+Banks&rft.date=1997-11&rft_id=http%3A%2F%2Fwww.dallasfed.org%2Fnews%2Fca%2F2005%2F05wallstreet_assets.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-17"><span class="mw-cite-backlink"><b><a href="#cite_ref-17">^</a></b></span> <span class="reference-text">Regulation B, Equal Credit Opportunity 12 CFR 202.14(b) as stated in <a rel="nofollow" class="external text" href="http://www.bos.frb.org/commdev/commaff/closingt.pd">Closing the Gap: A Guide to Equal Opportunity Lending</a><sup class="noprint Inline-Template"><span style="white-space: nowrap;">[<i><a href="/wiki/Wikipedia:Link_rot" title="Wikipedia:Link rot"><span title=" Dead link tagged March 2018">permanent dead link</span></a></i><span style="visibility:hidden; color:transparent; padding-left:2px">‍</span>]</span></sup>, <a href="/wiki/Federal_Reserve_System" class="mw-redirect" title="Federal Reserve System">Federal Reserve System</a> of Boston.</span> </li> <li id="cite_note-18"><span class="mw-cite-backlink"><b><a href="#cite_ref-18">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="http://www.fdic.gov/regulations/laws/rules/6500-2515.html">Text of Housing and Community Development Act of 1977—title Viii (Community Reinvestment)</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20080916032800/http://www.fdic.gov/regulations/laws/rules/6500-2515.html">Archived</a> 2008-09-16 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a>.</span> </li> <li id="cite_note-Federal_Reserve-19"><span class="mw-cite-backlink"><b><a href="#cite_ref-Federal_Reserve_19-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.federalreserve.gov/dcca/cra/">"Community Reinvestment Act"</a>. Federal Reserve<span class="reference-accessdate">. Retrieved <span class="nowrap">2008-10-05</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Community+Reinvestment+Act&rft.pub=Federal+Reserve&rft_id=http%3A%2F%2Fwww.federalreserve.gov%2Fdcca%2Fcra%2F&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-20"><span class="mw-cite-backlink"><b><a href="#cite_ref-20">^</a></b></span> <span class="reference-text">McClean, Nocera, p. 12.</span> </li> <li id="cite_note-21"><span class="mw-cite-backlink"><b><a href="#cite_ref-21">^</a></b></span> <span class="reference-text">McClean, Nocera, p. 5.</span> </li> <li id="cite_note-22"><span class="mw-cite-backlink"><b><a href="#cite_ref-22">^</a></b></span> <span class="reference-text">Liar's Poker, Michael Lewis.</span> </li> <li id="cite_note-Cresci-23"><span class="mw-cite-backlink"><b><a href="#cite_ref-Cresci_23-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFCresci" class="citation web cs1">Cresci, Gregory. <a rel="nofollow" class="external text" href="https://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.FcDwf1.ZG4">"Merrill, Citigroup Record CDO Fees Earned in Top Growth Market"</a>. <i>August 30, 2005</i>. Bloomberg L.P<span class="reference-accessdate">. Retrieved <span class="nowrap">11 July</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=August+30%2C+2005&rft.atitle=Merrill%2C+Citigroup+Record+CDO+Fees+Earned+in+Top+Growth+Market&rft.aulast=Cresci&rft.aufirst=Gregory&rft_id=https%3A%2F%2Fwww.bloomberg.com%2Fapps%2Fnews%3Fpid%3Dnewsarchive%26sid%3Da.FcDwf1.ZG4&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-FCIR-129-24"><span class="mw-cite-backlink">^ <a href="#cite_ref-FCIR-129_24-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-FCIR-129_24-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-FCIR-129_24-2"><sup><i><b>c</b></i></sup></a> <a href="#cite_ref-FCIR-129_24-3"><sup><i><b>d</b></i></sup></a></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 129.</span> </li> <li id="cite_note-FCIR-129-30-25"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-129-30_25-0">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, pp. 129-30.</span> </li> <li id="cite_note-Nocera,_p.120-26"><span class="mw-cite-backlink">^ <a href="#cite_ref-Nocera,_p.120_26-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-Nocera,_p.120_26-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFBethany_McLeanJoe_Nocera2011" class="citation book cs1">Bethany McLean; Joe Nocera (30 August 2011). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=8tGsDQjEaXoC&q=%22more+damage+than+collateralized+debt+obligations%22"><i>All the Devils Are Here: The Hidden History of the Financial Crisis</i></a>. Penguin Publishing Group. p. 120. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-1-101-55105-9" title="Special:BookSources/978-1-101-55105-9"><bdi>978-1-101-55105-9</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=All+the+Devils+Are+Here%3A+The+Hidden+History+of+the+Financial+Crisis&rft.pages=120&rft.pub=Penguin+Publishing+Group&rft.date=2011-08-30&rft.isbn=978-1-101-55105-9&rft.au=Bethany+McLean&rft.au=Joe+Nocera&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3D8tGsDQjEaXoC%26q%3D%2522more%2Bdamage%2Bthan%2Bcollateralized%2Bdebt%2Bobligations%2522&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-Nocera,_p.121-27"><span class="mw-cite-backlink">^ <a href="#cite_ref-Nocera,_p.121_27-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-Nocera,_p.121_27-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-Nocera,_p.121_27-2"><sup><i><b>c</b></i></sup></a></span> <span class="reference-text">McLean and Nocera, <i>All the Devils Are Here</i>, 2010 p. 121.</span> </li> <li id="cite_note-mclean-p123-28"><span class="mw-cite-backlink">^ <a href="#cite_ref-mclean-p123_28-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-mclean-p123_28-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">McLean and Nocera, <i>All the Devils Are Here</i>, 2010 p. 123.</span> </li> <li id="cite_note-Endangerment-283-29"><span class="mw-cite-backlink"><b><a href="#cite_ref-Endangerment-283_29-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFMorgensonJoshua_Rosner2011" class="citation book cs1">Morgenson, Gretchen; Joshua Rosner (2011). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=FwUW2yuJzW0C&q=Morgenson+and+Rosner+%27%27Reckless+Endangerment%27%27%2C+2010"><i>Reckless Endangerment : How Outsized ambition, Greed and Corruption Led to Economic Armageddon</i></a>. New York: Times Books, Henry Holt and Company. p. 283. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9781429965774" title="Special:BookSources/9781429965774"><bdi>9781429965774</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Reckless+Endangerment+%3A+How+Outsized+ambition%2C+Greed+and+Corruption+Led+to+Economic+Armageddon&rft.place=New+York&rft.pages=283&rft.pub=Times+Books%2C+Henry+Holt+and+Company&rft.date=2011&rft.isbn=9781429965774&rft.aulast=Morgenson&rft.aufirst=Gretchen&rft.au=Joshua+Rosner&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DFwUW2yuJzW0C%26q%3DMorgenson%2Band%2BRosner%2B%2527%2527Reckless%2BEndangerment%2527%2527%252C%2B2010&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-reckless-279-30"><span class="mw-cite-backlink">^ <a href="#cite_ref-reckless-279_30-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-reckless-279_30-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Morgenson and Rosner <i>Reckless Endangerment</i>, 2010 pp. 279-280.</span> </li> <li id="cite_note-31"><span class="mw-cite-backlink"><b><a href="#cite_ref-31">^</a></b></span> <span class="reference-text">McLean and Nocera, <i>All the Devils Are Here</i>, 2010 p. 189.</span> </li> <li id="cite_note-giantpoolpeabody-32"><span class="mw-cite-backlink">^ <a href="#cite_ref-giantpoolpeabody_32-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-giantpoolpeabody_32-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Public Radio International. April 5, 2009. <a rel="nofollow" class="external text" href="http://www.pri.org/business/giant-pool-of-money.html">"This American Life": Giant Pool of Money wins Peabody</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20100415153017/http://www.pri.org/business/giant-pool-of-money.html">Archived</a> 2010-04-15 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></span> </li> <li id="cite_note-giantpool-33"><span class="mw-cite-backlink">^ <a href="#cite_ref-giantpool_33-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-giantpool_33-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-giantpool_33-2"><sup><i><b>c</b></i></sup></a> <a href="#cite_ref-giantpool_33-3"><sup><i><b>d</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation episode cs1"><a rel="nofollow" class="external text" href="http://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money">"The Giant Pool of Money"</a>. <a href="/wiki/This_American_Life" title="This American Life"><i>This American Life</i></a>. Episode 355. Chicago IL, USA. May 9, 2008. <a href="/wiki/NPR" title="NPR">NPR</a>. <a href="/wiki/Chicago_Public_Media" title="Chicago Public Media">CPM</a>. <a rel="nofollow" class="external text" href="http://www.thisamericanlife.org/radio-archives/episode/355/transcript">transcript</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=This+American+Life&rft.place=Chicago+IL%2C+USA&rft.series=Episode+355&rft.date=2008-05-09&rft_id=http%3A%2F%2Fwww.thisamericanlife.org%2Fradio-archives%2Fepisode%2F355%2Fthe-giant-pool-of-money&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-34"><span class="mw-cite-backlink"><b><a href="#cite_ref-34">^</a></b></span> <span class="reference-text">of <a href="/wiki/Moody%27s_Analytics" title="Moody's Analytics">Moody's Analytics</a>.</span> </li> <li id="cite_note-Zandi_2009-35"><span class="mw-cite-backlink">^ <a href="#cite_ref-Zandi_2009_35-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-Zandi_2009_35-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-Zandi_2009_35-2"><sup><i><b>c</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFZandi2009" class="citation book cs1">Zandi, Mark (2009). <span class="id-lock-registration" title="Free registration required"><a rel="nofollow" class="external text" href="https://archive.org/details/financialshockgl00zand"><i>Financial Shock</i></a></span>. FT Press. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-13-701663-1" title="Special:BookSources/978-0-13-701663-1"><bdi>978-0-13-701663-1</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Financial+Shock&rft.pub=FT+Press&rft.date=2009&rft.isbn=978-0-13-701663-1&rft.aulast=Zandi&rft.aufirst=Mark&rft_id=https%3A%2F%2Farchive.org%2Fdetails%2Ffinancialshockgl00zand&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-36"><span class="mw-cite-backlink"><b><a href="#cite_ref-36">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFHsu2005" class="citation web cs1">Hsu, Steve (2005-09-12). <a rel="nofollow" class="external text" href="http://infoproc.blogspot.com/2005/09/gaussian-copula-and-credit-derivatives.html">"Information Processing: Gaussian copula and credit derivatives"</a>. Infoproc.blogspot.com<span class="reference-accessdate">. Retrieved <span class="nowrap">2013-01-03</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Information+Processing%3A+Gaussian+copula+and+credit+derivatives&rft.pub=Infoproc.blogspot.com&rft.date=2005-09-12&rft.aulast=Hsu&rft.aufirst=Steve&rft_id=http%3A%2F%2Finfoproc.blogspot.com%2F2005%2F09%2Fgaussian-copula-and-credit-derivatives.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-37"><span class="mw-cite-backlink"><b><a href="#cite_ref-37">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.wsj.com/articles/SB112649094075137685"><i>How a Formula Ignited Market That Burned Some Big Investors</i></a>| Mark Whitehouse| <i>Wall Street Journal</i>| September 12, 2005.</span> </li> <li id="cite_note-38"><span class="mw-cite-backlink"><b><a href="#cite_ref-38">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20161121204930/http://www.sifma.org/research/statistics.aspx">"SIFMA, Statistics, Structured Finance, Global CDO Issuance and Outstanding (xls) - quarterly data from 2000 to Q2 2013 (issuance), 1990 - Q1 2013 (outstanding)"</a>. Securities Industry and Financial Markets Association. Archived from <a rel="nofollow" class="external text" href="http://www.sifma.org/research/statistics.aspx">the original</a> on 2016-11-21<span class="reference-accessdate">. Retrieved <span class="nowrap">2013-07-10</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=SIFMA%2C+Statistics%2C+Structured+Finance%2C+Global+CDO+Issuance+and+Outstanding+%28xls%29+-+quarterly+data+from+2000+to+Q2+2013+%28issuance%29%2C+1990+-+Q1+2013+%28outstanding%29&rft.pub=Securities+Industry+and+Financial+Markets+Association&rft_id=http%3A%2F%2Fwww.sifma.org%2Fresearch%2Fstatistics.aspx&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-39"><span class="mw-cite-backlink"><b><a href="#cite_ref-39">^</a></b></span> <span class="reference-text">One study based on a sample of 735 CDO deals originated between 1999 and 2007, found the percentage of CDO assets made up of lower level tranches from non-prime mortgage-backed securities (nonprime means subprime and other less-than-prime mortgages, mainly <a href="/wiki/Alt-A" title="Alt-A">Alt-A</a> mortgages) grew from 5% to 36% (source: <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/Barnett-Hart_2009.pdf">"Anna Katherine Barnett-Hart The Story of the CDO Market Meltdown: An Empirical Analysis-March 2009"</a> <span class="cs1-format">(PDF)</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Anna+Katherine+Barnett-Hart+The+Story+of+the+CDO+Market+Meltdown%3A+An+Empirical+Analysis-March+2009&rft_id=https%3A%2F%2Fwww.hks.harvard.edu%2Fsites%2Fdefault%2Ffiles%2Fcenters%2Fmrcbg%2Ffiles%2FBarnett-Hart_2009.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span>).</span> </li> <li id="cite_note-40"><span class="mw-cite-backlink"><b><a href="#cite_ref-40">^</a></b></span> <span class="reference-text">Other sources give an even higher proportion. In the fall of 2005 Gene Park, an executive at AIG Financial Products division found, "The percentage of subprime securities in the CDOs wasn't 10 percent – it was 85 percent!" (source: McLean and Nocera, <i>All the Devils Are Here</i>, 2010, p. 201.</span> </li> <li id="cite_note-41"><span class="mw-cite-backlink"><b><a href="#cite_ref-41">^</a></b></span> <span class="reference-text">An email by Park to his superior is also quoted in the <i>Financial Crisis Inquiry Report</i> p.201: "The CDO of the ABS market ... is currently at a state where deals are almost totally reliant on subprime/nonprime mortgage residential mortgage collateral."</span> </li> <li id="cite_note-42"><span class="mw-cite-backlink"><b><a href="#cite_ref-42">^</a></b></span> <span class="reference-text">Still another source (<i><a href="/wiki/The_Big_Short" title="The Big Short">The Big Short</a></i>, <a href="/wiki/Michael_Lewis" title="Michael Lewis">Michael Lewis</a>, p.71) says:<br />"The 'consumer loans' piles that Wall Street firms, led by Goldman Sachs, asked AIG FP to insure went from being 2% subprime mortgages to being 95% subprime mortgages. In a matter of months, AIG-FP, in effect, bought $50 billion in triple-B-rated subprime mortgage bonds by insuring them against default. And yet no one said anything about it ...".</span> </li> <li id="cite_note-43"><span class="mw-cite-backlink"><b><a href="#cite_ref-43">^</a></b></span> <span class="reference-text">In 2007, 47% of CDOs were backed by structured products, such as mortgages; 45% of CDOs were backed by loans, and only less than 10% of CDOs were backed by fixed income securities. (source: <a rel="nofollow" class="external text" href="http://www.abalert.com/Public/MarketPlace/Ranking/index.cfm?files=disp&article_id=1044676277">Securitization rankings of bookrunners, issuers, etc.</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20070929065713/http://www.abalert.com/Public/MarketPlace/Ranking/index.cfm?files=disp&article_id=1044676277">Archived</a> 2007-09-29 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a>.</span> </li> <li id="cite_note-44"><span class="mw-cite-backlink"><b><a href="#cite_ref-44">^</a></b></span> <span class="reference-text">"Moody's and S&P to bestow[ed] triple-A ratings on roughly 80% of every CDO." (source: <i>The Big Short</i>, Michael Lewis, pp. 207–208).</span> </li> <li id="cite_note-45"><span class="mw-cite-backlink"><b><a href="#cite_ref-45">^</a></b></span> <span class="reference-text"><i>The Big Short</i>, Michael Lewis, pp. 207–208.</span> </li> <li id="cite_note-hart-46"><span class="mw-cite-backlink">^ <a href="#cite_ref-hart_46-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-hart_46-1"><sup><i><b>b</b></i></sup></a> <a href="#cite_ref-hart_46-2"><sup><i><b>c</b></i></sup></a></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/Barnett-Hart_2009.pdf">Anna Katherine Barnett-Hart The Story of the CDO Market Meltdown: An Empirical Analysis-March 2009</a>-Cited by Michael Lewis in <i>The Big Short</i>.</span> </li> <li id="cite_note-econintersect-47"><span class="mw-cite-backlink"><b><a href="#cite_ref-econintersect_47-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="http://econintersect.com/b2evolution/blog1.php/2011/06/15/sec-broadens-cdo-probes">"SEC Broadens CDO Probes"</a>. <i>June 15th, 2011</i>. Global Economic Intersection. 15 June 2011<span class="reference-accessdate">. Retrieved <span class="nowrap">8 February</span> 2014</span>. <q>[Includes] graph and table from Pro Publica [that] show the size and institutional reach of the Magnetar CDOs [versus the whole CDO market].</q></cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=June+15th%2C+2011&rft.atitle=SEC+Broadens+CDO+Probes&rft.date=2011-06-15&rft_id=http%3A%2F%2Feconintersect.com%2Fb2evolution%2Fblog1.php%2F2011%2F06%2F15%2Fsec-broadens-cdo-probes&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-48"><span class="mw-cite-backlink"><b><a href="#cite_ref-48">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation pressrelease cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20090303133103/http://www.celent.com/PressReleases/20051031/CDOMarket.htm">"Collateralized Debt Obligations Market"</a> (Press release). Celent. 2005-10-31. Archived from <a rel="nofollow" class="external text" href="http://www.celent.com/PressReleases/20051031/CDOMarket.htm">the original</a> on 2009-03-03<span class="reference-accessdate">. Retrieved <span class="nowrap">2009-02-23</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Collateralized+Debt+Obligations+Market&rft.pub=Celent&rft.date=2005-10-31&rft_id=http%3A%2F%2Fwww.celent.com%2FPressReleases%2F20051031%2FCDOMarket.htm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-nber-49"><span class="mw-cite-backlink"><b><a href="#cite_ref-nber_49-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFBenmelechJennifer_Dlugosz2009" class="citation web cs1">Benmelech, Efraim; Jennifer Dlugosz (2009). <a rel="nofollow" class="external text" href="https://www.nber.org/chapters/c11794.pdf">"The Credit Rating Crisis"</a> <span class="cs1-format">(PDF)</span>. <i>NBER Macroeconomics Annual 2009</i>. National Bureau of Economic Research, NBER Macroeconomics Annual.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=NBER+Macroeconomics+Annual+2009&rft.atitle=The+Credit+Rating+Crisis&rft.date=2009&rft.aulast=Benmelech&rft.aufirst=Efraim&rft.au=Jennifer+Dlugosz&rft_id=https%3A%2F%2Fwww.nber.org%2Fchapters%2Fc11794.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-FCIR-134-50"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-134_50-0">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 134, section="Leverage is inherent in CDOs".</span> </li> <li id="cite_note-reckless-278-51"><span class="mw-cite-backlink">^ <a href="#cite_ref-reckless-278_51-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-reckless-278_51-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Morgenson and Rosner <i>Reckless Endangerment</i>, 2010, p. 278.</span> </li> <li id="cite_note-52"><span class="mw-cite-backlink"><b><a href="#cite_ref-52">^</a></b></span> <span class="reference-text">see also <i>Financial Crisis Inquiry Report</i>, p. 127.</span> </li> <li id="cite_note-53"><span class="mw-cite-backlink"><b><a href="#cite_ref-53">^</a></b></span> <span class="reference-text">70%. "Firms bought mortgage-backed bonds with the very highest yields they could find and reassembled them into new CDOs. The original bonds ... could be lower-rated securities that once reassembled into a new CDO would wind up with as much as 70% of the tranches rated triple-A. Ratings arbitrage, Wall Street called this practice. A more accurate term would have been ratings laundering." (source: McLean and Nocera, <i>All the Devils Are Here</i>, 2010 p. 122).</span> </li> <li id="cite_note-54"><span class="mw-cite-backlink"><b><a href="#cite_ref-54">^</a></b></span> <span class="reference-text">80%. "Approximately 80% of these CDO tranches would be rated triple-A despite the fact that they generally comprised the lower-rated tranches of mortgage-backed securities. (source: <i>The Financial Crisis Inquiry Report</i>, 2011, p. 127.</span> </li> <li id="cite_note-55"><span class="mw-cite-backlink"><b><a href="#cite_ref-55">^</a></b></span> <span class="reference-text">80%. "In a CDO you gathered a 100 different mortgage bonds—usually the riskiest lower floors of the original tower ... They bear a lower credit rating triple-B. ... if you could somehow get them rerated as triple-A, thereby lowering their perceived risk, however dishonestly and artificially. This is what Goldman Sachs had cleverly done. It was absurd. The 100 buildings occupied the same floodplain; in the event of flood, the ground floors of all of them were equally exposed. But never mind: the rating agencies, who were paid fat fees by Goldman Sachs and other Wall Street firms for each deal they rated, pronounced 80% of the new tower of debt triple-A." (source: Michael Lewis, <i>The Big Short : Inside the Doomsday Machine</i> WW Norton and Co, 2010, p. 73).</span> </li> <li id="cite_note-56"><span class="mw-cite-backlink"><b><a href="#cite_ref-56">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 103.</span> </li> <li id="cite_note-57"><span class="mw-cite-backlink"><b><a href="#cite_ref-57">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 104.</span> </li> <li id="cite_note-reckless-280-58"><span class="mw-cite-backlink">^ <a href="#cite_ref-reckless-280_58-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-reckless-280_58-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Morgenson and Rosner <i>Reckless Endangerment</i>, 2010 p. 280.</span> </li> <li id="cite_note-59"><span class="mw-cite-backlink"><b><a href="#cite_ref-59">^</a></b></span> <span class="reference-text">see also: <a rel="nofollow" class="external text" href="https://archive.today/20120716084801/http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a6NdKd8CfR2A">Bloomberg-Flawed Credit Ratings Reap Profits as Regulators Fail Investors-April 2009</a>.</span> </li> <li id="cite_note-McLean-124-60"><span class="mw-cite-backlink">^ <a href="#cite_ref-McLean-124_60-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-McLean-124_60-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">McLean and Nocera, <i>All the Devils Are Here</i>, p. 124.</span> </li> <li id="cite_note-61"><span class="mw-cite-backlink"><b><a href="#cite_ref-61">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.pbs.org/now/shows/446/index.html">PBS-Credit and Credibility-December 2008</a>.</span> </li> <li id="cite_note-FCIR-132-62"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-132_62-0">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 132.</span> </li> <li id="cite_note-63"><span class="mw-cite-backlink"><b><a href="#cite_ref-63">^</a></b></span> <span class="reference-text">"Unlike the traditional cash CDO, synthetic CDOs contained no actual tranches of mortgage-backed securities ... in the place of real mortgage assets, these CDOs contained credit default swaps and did not finance a single home purchase." (source: <i>The Financial Crisis Inquiry Report</i>, 2011, p. 142).</span> </li> <li id="cite_note-propublica.org-64"><span class="mw-cite-backlink"><b><a href="#cite_ref-propublica.org_64-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20100410084812/http://www.propublica.org/feature/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble">"The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going (Single Page)-April 2010"</a>. Archived from <a rel="nofollow" class="external text" href="https://www.propublica.org/feature/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble">the original</a> on 2010-04-10<span class="reference-accessdate">. Retrieved <span class="nowrap">2017-10-05</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=The+Magnetar+Trade%3A+How+One+Hedge+Fund+Helped+Keep+the+Bubble+Going+%28Single+Page%29-April+2010&rft_id=https%3A%2F%2Fwww.propublica.org%2Ffeature%2Fall-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-impaired-65"><span class="mw-cite-backlink">^ <a href="#cite_ref-impaired_65-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-impaired_65-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf">Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States</a>, p. 229, figure 11.4.</span> </li> <li id="cite_note-66"><span class="mw-cite-backlink"><b><a href="#cite_ref-66">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://books.google.com/books?id=TNarLsnZyPoC&pg=PA95"><i>The Big Short</i></a>, Michael Lewis, p. 95.</span> </li> <li id="cite_note-FCIR-87-67"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-87_67-0">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 87, figure 6.2.</span> </li> <li id="cite_note-lewis-94-68"><span class="mw-cite-backlink">^ <a href="#cite_ref-lewis-94_68-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-lewis-94_68-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text">Michael Lewis, <i>The Big Short</i>, p. 94-7.</span> </li> <li id="cite_note-69"><span class="mw-cite-backlink"><b><a href="#cite_ref-69">^</a></b></span> <span class="reference-text">Lewis, Michael, <i>The Big Short</i>.</span> </li> <li id="cite_note-CDOh-70"><span class="mw-cite-backlink"><b><a href="#cite_ref-CDOh_70-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="http://www.economist.com/node/10113339">"CDOh no! (see "Subprime performance" chart)"</a>. <i>The Economist</i>. 8 November 2007.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Economist&rft.atitle=CDOh+no%21+%28see+%22Subprime+performance%22+chart%29&rft.date=2007-11-08&rft_id=http%3A%2F%2Fwww.economist.com%2Fnode%2F10113339&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-71"><span class="mw-cite-backlink"><b><a href="#cite_ref-71">^</a></b></span> <span class="reference-text">By the first quarter of 2008, rating agencies announced 4,485 downgrades of CDOs. source: <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFAubin2008" class="citation news cs1">Aubin, Dena (2008-04-09). <a rel="nofollow" class="external text" href="https://web.archive.org/web/20080905070438/http://uk.reuters.com/article/marketsNewsUS/idUKN0947372020080409">"CDO deals resurface but down 90 pct in Q1-report"</a>. <i>Reuters</i>. Archived from <a rel="nofollow" class="external text" href="http://uk.reuters.com/article/marketsNewsUS/idUKN0947372020080409">the original</a> on September 5, 2008.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Reuters&rft.atitle=CDO+deals+resurface+but+down+90+pct+in+Q1-report&rft.date=2008-04-09&rft.aulast=Aubin&rft.aufirst=Dena&rft_id=http%3A%2F%2Fuk.reuters.com%2Farticle%2FmarketsNewsUS%2FidUKN0947372020080409&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-FCIR-148-72"><span class="mw-cite-backlink"><b><a href="#cite_ref-FCIR-148_72-0">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, p. 148.</span> </li> <li id="cite_note-73"><span class="mw-cite-backlink"><b><a href="#cite_ref-73">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="https://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aQKWd1Xc2Vt4">"Bear Stearns Tells Fund Investors 'No Value Left' (Update3)"</a>. <i>Bloomberg</i>. 2007-07-18.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Bloomberg&rft.atitle=Bear+Stearns+Tells+Fund+Investors+%27No+Value+Left%27+%28Update3%29&rft.date=2007-07-18&rft_id=https%3A%2F%2Fwww.bloomberg.com%2Fapps%2Fnews%3Fpid%3D20601087%26refer%3Dhome%26sid%3DaQKWd1Xc2Vt4&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-74"><span class="mw-cite-backlink"><b><a href="#cite_ref-74">^</a></b></span> <span class="reference-text">Many CDOs are <a href="/wiki/Mark-to-market" class="mw-redirect" title="Mark-to-market">marked to market</a> and thus experienced substantial <a href="/wiki/Depreciation" title="Depreciation">write-downs</a> as their market value collapsed during the subprime crisis, with banks writing down the value of their CDO holdings mainly in the 2007-2008 period.</span> </li> <li id="cite_note-75"><span class="mw-cite-backlink"><b><a href="#cite_ref-75">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFEavis2007" class="citation news cs1">Eavis, Peter (2007-10-24). <a rel="nofollow" class="external text" href="https://money.cnn.com/2007/10/24/news/companies/merrill_eavis.fortune/index.htm?section=money_latest">"Merrill's $3.4 billion balance sheet bomb"</a>. <i>CNN</i><span class="reference-accessdate">. Retrieved <span class="nowrap">2010-04-30</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=CNN&rft.atitle=Merrill%27s+%243.4+billion+balance+sheet+bomb&rft.date=2007-10-24&rft.aulast=Eavis&rft.aufirst=Peter&rft_id=https%3A%2F%2Fmoney.cnn.com%2F2007%2F10%2F24%2Fnews%2Fcompanies%2Fmerrill_eavis.fortune%2Findex.htm%3Fsection%3Dmoney_latest&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-76"><span class="mw-cite-backlink"><b><a href="#cite_ref-76">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="http://www.economist.com/daily/news/displaystory.cfm?story_id=10050287&top_story=1">"Herd's head trampled"</a>. <i>The Economist</i>. 2007-10-30.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=The+Economist&rft.atitle=Herd%27s+head+trampled&rft.date=2007-10-30&rft_id=http%3A%2F%2Fwww.economist.com%2Fdaily%2Fnews%2Fdisplaystory.cfm%3Fstory_id%3D10050287%26top_story%3D1&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-77"><span class="mw-cite-backlink"><b><a href="#cite_ref-77">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="http://news.bbc.co.uk/1/hi/business/7078251.stm">"Citigroup chief executive resigns"</a>. <i>BBC News</i>. 2007-11-05<span class="reference-accessdate">. Retrieved <span class="nowrap">2010-04-30</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=BBC+News&rft.atitle=Citigroup+chief+executive+resigns&rft.date=2007-11-05&rft_id=http%3A%2F%2Fnews.bbc.co.uk%2F1%2Fhi%2Fbusiness%2F7078251.stm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-78"><span class="mw-cite-backlink"><b><a href="#cite_ref-78">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="https://money.cnn.com/2007/06/20/news/companies/bear_stearns/index.htm">"Merrill sells assets seized from hedge funds"</a>. <i>CNN</i>. June 20, 2007<span class="reference-accessdate">. Retrieved <span class="nowrap">May 24,</span> 2010</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=CNN&rft.atitle=Merrill+sells+assets+seized+from+hedge+funds&rft.date=2007-06-20&rft_id=https%3A%2F%2Fmoney.cnn.com%2F2007%2F06%2F20%2Fnews%2Fcompanies%2Fbear_stearns%2Findex.htm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-79"><span class="mw-cite-backlink"><b><a href="#cite_ref-79">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation news cs1"><a rel="nofollow" class="external text" href="http://news.bbc.co.uk/2/hi/business/7096845.stm">"Timeline: Sub-prime losses"</a>. <i>BBC</i>. May 19, 2008<span class="reference-accessdate">. Retrieved <span class="nowrap">May 24,</span> 2010</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=BBC&rft.atitle=Timeline%3A+Sub-prime+losses&rft.date=2008-05-19&rft_id=http%3A%2F%2Fnews.bbc.co.uk%2F2%2Fhi%2Fbusiness%2F7096845.stm&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-sifma-80"><span class="mw-cite-backlink"><b><a href="#cite_ref-sifma_80-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://web.archive.org/web/20080909210216/http://www.sifma.org/research/pdf/SIFMA_CDOIssuanceData2008.pdf">"Archived copy"</a> <span class="cs1-format">(PDF)</span>. Archived from <a rel="nofollow" class="external text" href="http://www.sifma.org/research/pdf/SIFMA_CDOIssuanceData2008.pdf">the original</a> <span class="cs1-format">(PDF)</span> on 2008-09-09<span class="reference-accessdate">. Retrieved <span class="nowrap">2008-03-22</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Archived+copy&rft_id=http%3A%2F%2Fwww.sifma.org%2Fresearch%2Fpdf%2FSIFMA_CDOIssuanceData2008.pdf&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span><span class="cs1-maint citation-comment"><code class="cs1-code">{{<a href="/wiki/Template:Cite_web" title="Template:Cite web">cite web</a>}}</code>: CS1 maint: archived copy as title (<a href="/wiki/Category:CS1_maint:_archived_copy_as_title" title="Category:CS1 maint: archived copy as title">link</a>)</span></span> </li> <li id="cite_note-autogenerated2-81"><span class="mw-cite-backlink">^ <a href="#cite_ref-autogenerated2_81-0"><sup><i><b>a</b></i></sup></a> <a href="#cite_ref-autogenerated2_81-1"><sup><i><b>b</b></i></sup></a></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFAubin2008" class="citation news cs1">Aubin, Dena (2008-04-09). <a rel="nofollow" class="external text" href="https://web.archive.org/web/20080905070438/http://uk.reuters.com/article/marketsNewsUS/idUKN0947372020080409">"CDO deals resurface but down 90 pct in Q1-report"</a>. <i>Reuters</i>. 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"<a rel="nofollow" class="external text" href="https://www.wsj.com/news/articles/SB120027155742887331">A Fund Behind Astronomical Losses</a>," (Magnetar) <i>Wall Street Journal</i>, January 14, 2008.</span> </li> <li id="cite_note-89"><span class="mw-cite-backlink"><b><a href="#cite_ref-89">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFMorgensonJoshua_Rosner2011" class="citation book cs1">Morgenson, Gretchen; Joshua Rosner (2011). <a rel="nofollow" class="external text" href="https://books.google.com/books?id=FwUW2yuJzW0C&q=Morgenson+and+Rosner+%27%27Reckless+Endangerment%27%27%2C+2010"><i>Reckless Endangerment : How Outsized ambition, Greed and Corruption Led to Economic Armageddon</i></a>. New York: Times Books, Henry Holt and Company. p. 278. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/9781429965774" title="Special:BookSources/9781429965774"><bdi>9781429965774</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Reckless+Endangerment+%3A+How+Outsized+ambition%2C+Greed+and+Corruption+Led+to+Economic+Armageddon&rft.place=New+York&rft.pages=278&rft.pub=Times+Books%2C+Henry+Holt+and+Company&rft.date=2011&rft.isbn=9781429965774&rft.aulast=Morgenson&rft.aufirst=Gretchen&rft.au=Joshua+Rosner&rft_id=https%3A%2F%2Fbooks.google.com%2Fbooks%3Fid%3DFwUW2yuJzW0C%26q%3DMorgenson%2Band%2BRosner%2B%2527%2527Reckless%2BEndangerment%2527%2527%252C%2B2010&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-90"><span class="mw-cite-backlink"><b><a href="#cite_ref-90">^</a></b></span> <span class="reference-text"><i>The Financial Crisis Inquiry Report</i>, 2011, pp. 118-121.</span> </li> <li id="cite_note-91"><span class="mw-cite-backlink"><b><a href="#cite_ref-91">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.bloomberg.com/apps/news?pid=20601109&sid=ah839IWTLP9s">Bloomberg-Smith-Bringing Down Ratings Let Loose Subprime Scourge</a>.</span> </li> <li id="cite_note-bloomberg.com-92"><span class="mw-cite-backlink"><b><a href="#cite_ref-bloomberg.com_92-0">^</a></b></span> <span class="reference-text"><a rel="nofollow" class="external text" href="https://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo">Bloomberg-Smith-Race to Bottom at Rating Agencies Secured Subprime Boom, Bust</a>.</span> </li> <li id="cite_note-93"><span class="mw-cite-backlink"><b><a href="#cite_ref-93">^</a></b></span> <span class="reference-text">Morgenson and Rosner, <i>Reckless Endangerment</i>, 2010 pp. 280-281.</span> </li> <li id="cite_note-big-94"><span class="mw-cite-backlink"><b><a href="#cite_ref-big_94-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFLewis2010" class="citation book cs1">Lewis, Michael (2010). <i>The Big Short : Inside the Doomsday Machine</i>. 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(<i>The Financial Crisis Inquiry Report</i>, 2011, p. 89).</span> </li> <li id="cite_note-97"><span class="mw-cite-backlink"><b><a href="#cite_ref-97">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFKoehler2011" class="citation journal cs1">Koehler, Christian (31 May 2011). 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Retrieved <span class="nowrap">October 21,</span> 2012</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Crisis+explainer%3A+Uncorking+CDOs&rft.pub=American+Public+Media&rft.date=2008-10-03&rft_id=http%3A%2F%2Fwww.marketplace.org%2Ftopics%2Fbusiness%2Fwhiteboard%2Fcrisis-explainer-uncorking-cdos&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-dealbook-107"><span class="mw-cite-backlink"><b><a href="#cite_ref-dealbook_107-0">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFDealbook2008" class="citation web cs1">Dealbook (2 January 2008). <a rel="nofollow" class="external text" href="https://dealbook.nytimes.com/2008/01/02/citi-and-merrill-top-underwriting-league-tables/">"Citi and Merrill Top Underwriting League Tables"</a>. <i>January 2, 2008</i>. New York Times<span class="reference-accessdate">. Retrieved <span class="nowrap">16 July</span> 2013</span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=unknown&rft.jtitle=January+2%2C+2008&rft.atitle=Citi+and+Merrill+Top+Underwriting+League+Tables&rft.date=2008-01-02&rft.au=Dealbook&rft_id=https%3A%2F%2Fdealbook.nytimes.com%2F2008%2F01%2F02%2Fciti-and-merrill-top-underwriting-league-tables%2F&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> <li id="cite_note-108"><span class="mw-cite-backlink"><b><a href="#cite_ref-108">^</a></b></span> <span class="reference-text">Two notable exceptions to this are Virtus Partners and Wilmington Trust Conduit Services, a subsidiary of <a href="/wiki/Wilmington_Trust" title="Wilmington Trust">Wilmington Trust</a>, which offer collateral administration services, but are not trustee banks.</span> </li> <li id="cite_note-109"><span class="mw-cite-backlink"><b><a href="#cite_ref-109">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation audio-visual cs1">Adam McKay (Director) (November 12, 2015). <i>The Big Short</i> (Motion picture). United States: <a href="/wiki/Paramount_Pictures" title="Paramount Pictures">Paramount Pictures</a> (distributor). 33 minutes in. <q>So mortgage bonds are dog shit. CDOs are dog shit wrapped in cat shit?" "Yeah, that's right.</q></cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=The+Big+Short&rft.place=United+States&rft.pub=Paramount+Pictures+%28distributor%29&rft.date=2015-11-12&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACollateralized+debt+obligation" class="Z3988"></span></span> </li> </ol></div> <div class="mw-heading mw-heading2"><h2 id="External_links">External links</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Collateralized_debt_obligation&action=edit&section=24" title="Edit section: External links"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a rel="nofollow" class="external text" href="https://www.npr.org/templates/story/story.php?storyId=90327686">Global Pool of Money (NPR radio)</a></li> <li><a rel="nofollow" class="external text" href="https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/Barnett-Hart_2009.pdf">The Story of the CDO Market Meltdown: An Empirical Analysis-Anna Katherine Barnett-Hart-March 2009-Cited by Michael Lewis in "The Big Short"</a></li> <li><a rel="nofollow" class="external text" href="https://www.youtube.com/watch?v=WMwAyDnKjyk">Diagram and Explanation of CDO</a></li> <li><a rel="nofollow" class="external text" href="http://cybercemetery.unt.edu/archive/fcic/20110310172920/http://fcic.gov/img/2010-0602-aaa-assets-chart.pdf">CDO and RMBS Diagram-FCIC and IMF</a></li> <li><a rel="nofollow" class="external text" href="http://goldnews.bullionvault.com/files/Investment_Landfill.pdf">"Investment Landfill"</a></li> <li><a rel="nofollow" class="external text" href="http://www.portfolio.com/interactive-features/2007/12/cdo">Portfolio.com explains what CDOs are in an easy-to-understand multimedia graphic</a></li> <li><a rel="nofollow" class="external text" href="https://www.wsj.com/public/resources/documents/info-flash07.html?project=normaSubprime0712&h=530&w=980&hasAd=1&settings=normaSubprime0712">The Making of a Mortgage CDO</a> multimedia graphic from The Wall Street Journal</li> <li><a rel="nofollow" class="external text" href="http://www.jpri.org/publications/occasionalpapers/op37.html">JPRI Occasional Paper No. 37, October 2007. Risk vs Uncertainty: The Cause of the Current Financial Crisis By Marshall Auerback</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20200602113033/http://www.jpri.org/publications/occasionalpapers/op37.html">Archived</a> 2020-06-02 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></li> <li><a rel="nofollow" class="external text" href="https://www.marketplace.org/2008/11/25/business/whiteboard%E2%84%A2/how-credit-cards-become-asset-backed-bonds">How credit cards become asset-backed bonds. From Marketplace</a></li> <li>Vink, Dennis and Thibeault, André (2008). <a rel="nofollow" class="external text" href="https://ssrn.com/abstract=1016854">"ABS, MBS and CDO Compared: An Empirical Analysis"</a>, <i><a href="/wiki/Journal_of_Structured_Finance" class="mw-redirect" title="Journal of Structured Finance">Journal of Structured Finance</a></i></li> <li><a rel="nofollow" class="external text" href="http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP">"A tsunami of hope or terror?", Alan Kohler, Nov 19, 2008.</a></li> <li><a rel="nofollow" class="external text" href="https://www.pbs.org/wgbh/frontline/film/warning/">"<i>The Warning</i>"</a> – an episode on <a href="/wiki/PBS" title="PBS">PBS</a> that discusses some of the causes of the <a href="/wiki/Financial_crisis_of_2007%E2%80%932008" class="mw-redirect" title="Financial crisis of 2007–2008">financial crisis of 2007–2008</a> including the CDOs market</li></ul> <div class="navbox-styles"><link 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href="/wiki/Corporate_bond" title="Corporate bond">Corporate bond</a> <ul><li><a href="/wiki/Senior_debt" title="Senior debt">Senior debt</a></li> <li><a href="/wiki/Subordinated_debt" title="Subordinated debt">Subordinated debt</a></li></ul></li> <li><a href="/wiki/Distressed_securities" title="Distressed securities">Distressed debt</a></li> <li><a href="/wiki/Government_bond" title="Government bond">Government bond</a></li> <li><a href="/wiki/Infrastructure_bond" title="Infrastructure bond">Infrastructure bond</a></li> <li><a href="/wiki/Municipal_bond" title="Municipal bond">Municipal bond</a></li> <li><a href="/wiki/Global_bond" title="Global bond">Global bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Types of bonds by payout</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Accrual_bond" title="Accrual bond">Accrual bond</a></li> <li><a href="/wiki/Auction_rate_security" title="Auction rate security">Auction rate security</a></li> <li><a href="/wiki/Callable_bond" title="Callable bond">Callable bond</a></li> <li><a href="/wiki/Commercial_paper" title="Commercial paper">Commercial paper</a></li> <li><a href="/wiki/Consol_(bond)" title="Consol (bond)">Consol</a></li> <li><a href="/wiki/Contingent_convertible_bond" title="Contingent convertible bond">Contingent convertible bond</a></li> <li><a href="/wiki/Convertible_bond" title="Convertible bond">Convertible bond</a></li> <li><a href="/wiki/Exchangeable_bond" title="Exchangeable bond">Exchangeable bond</a></li> <li><a href="/wiki/Extendible_bond" title="Extendible bond">Extendible bond</a></li> <li><a href="/wiki/Fixed_rate_bond" class="mw-redirect" title="Fixed rate bond">Fixed rate bond</a></li> <li><a href="/wiki/Floating_rate_note" title="Floating rate note">Floating rate note</a></li> <li><a href="/wiki/High-yield_debt" title="High-yield debt">High-yield debt</a></li> <li><a href="/wiki/Inflation-indexed_bond" title="Inflation-indexed bond">Inflation-indexed bond</a></li> <li><a href="/wiki/Inverse_floating_rate_note" title="Inverse floating rate note">Inverse floating rate note</a></li> <li><a href="/wiki/Lottery_bond" title="Lottery bond">Lottery bond</a></li> <li><a href="/wiki/Perpetual_bond" title="Perpetual bond">Perpetual bond</a></li> <li><a href="/wiki/Puttable_bond" title="Puttable bond">Puttable bond</a></li> <li><a href="/wiki/Reverse_convertible_securities" title="Reverse convertible securities">Reverse convertible securities</a></li> <li><a href="/wiki/Zero-coupon_bond" title="Zero-coupon bond">Zero-coupon bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Bond_valuation" title="Bond valuation">Bond valuation</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Clean_price" title="Clean price">Clean price</a></li> <li><a href="/wiki/Bond_convexity" title="Bond convexity">Convexity</a></li> <li><a href="/wiki/Coupon_(finance)" title="Coupon (finance)">Coupon</a></li> <li><a href="/wiki/Yield_spread" title="Yield spread">Credit spread</a></li> <li><a href="/wiki/Current_yield" title="Current yield">Current yield</a></li> <li><a href="/wiki/Dirty_price" title="Dirty price">Dirty price</a></li> <li><a href="/wiki/Bond_duration" class="mw-redirect" title="Bond duration">Duration</a></li> <li><a href="/wiki/I-spread" title="I-spread">I-spread</a></li> <li><a href="/wiki/Mortgage_yield" title="Mortgage yield">Mortgage yield</a></li> <li><a href="/wiki/Nominal_yield" title="Nominal yield">Nominal yield</a></li> <li><a href="/wiki/Option-adjusted_spread" title="Option-adjusted spread">Option-adjusted spread</a></li> <li><a href="/wiki/Risk-free_bond" title="Risk-free bond">Risk-free bond</a></li> <li><a href="/wiki/Weighted-average_life" title="Weighted-average life">Weighted-average life</a></li> <li><a href="/wiki/Yield_curve" title="Yield curve">Yield curve</a></li> <li><a href="/wiki/Yield_spread" title="Yield spread">Yield spread</a></li> <li><a href="/wiki/Yield_to_maturity" title="Yield to maturity">Yield to maturity</a></li> <li><a href="/wiki/Z-spread" title="Z-spread">Z-spread</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Securitized products</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asset-backed_security" title="Asset-backed security">Asset-backed security</a></li> <li><a class="mw-selflink selflink">Collateralized debt obligation</a></li> <li><a href="/wiki/Collateralized_mortgage_obligation" title="Collateralized mortgage obligation">Collateralized mortgage obligation</a></li> <li><a href="/wiki/Commercial_mortgage-backed_security" title="Commercial mortgage-backed security">Commercial mortgage-backed security</a></li> <li><a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">Mortgage-backed security</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Bond_option" title="Bond option">Bond options</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Callable_bond" title="Callable bond">Callable bond</a></li> <li><a href="/wiki/Convertible_bond" title="Convertible bond">Convertible bond</a></li> <li><a href="/wiki/Embedded_option" title="Embedded option">Embedded option</a></li> <li><a href="/wiki/Exchangeable_bond" title="Exchangeable bond">Exchangeable bond</a></li> <li><a href="/wiki/Extendible_bond" title="Extendible bond">Extendible bond</a></li> <li><a href="/wiki/Puttable_bond" title="Puttable bond">Puttable bond</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Institutions</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Commercial_Mortgage_Securities_Association" title="Commercial Mortgage Securities Association">Commercial Mortgage Securities Association</a> (CMSA)</li> <li><a href="/wiki/International_Capital_Market_Association" title="International Capital Market Association">International Capital Market Association</a> (ICMA)</li> <li><a href="/wiki/Securities_Industry_and_Financial_Markets_Association" title="Securities Industry and Financial Markets Association">Securities Industry and Financial Markets Association</a> (SIFMA)</li></ul> </div></td></tr></tbody></table></div> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236075235"></div><div role="navigation" class="navbox" aria-labelledby="Structured_finance" style="padding:3px"><table class="nowraplinks mw-collapsible autocollapse navbox-inner" style="border-spacing:0;background:transparent;color:inherit"><tbody><tr><th scope="col" class="navbox-title" colspan="2"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1239400231"><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Structured_finance" title="Template:Structured finance"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Structured_finance" title="Template talk:Structured finance"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Structured_finance" title="Special:EditPage/Template:Structured finance"><abbr title="Edit this template">e</abbr></a></li></ul></div><div id="Structured_finance" style="font-size:114%;margin:0 4em"><a href="/wiki/Structured_finance" title="Structured finance">Structured finance</a></div></th></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Securitization" title="Securitization">Securitization</a></th><td class="navbox-list-with-group navbox-list navbox-odd hlist" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Securitization_transaction" class="mw-redirect" title="Securitization transaction">Securitization transaction</a></li> <li><a href="/wiki/Credit_enhancement" title="Credit enhancement">Credit enhancement</a></li> <li><a href="/wiki/Tranche" title="Tranche">Tranche</a></li> <li><a href="/wiki/Orphan_structure" title="Orphan structure">Orphan structure</a></li> <li><a href="/wiki/Shell_corporation" title="Shell corporation">Shell company</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Types of securities</th><td class="navbox-list-with-group navbox-list navbox-even hlist" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asset-backed_security" title="Asset-backed security">Asset-backed security</a> (ABS)</li> <li><a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">Mortgage-backed security</a> (MBS)</li> <li><a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default swap</a> (CDS)</li> <li><a class="mw-selflink selflink">Collateralized debt obligation</a> (CDO)</li> <li><a href="/wiki/Collateralized_mortgage_obligation" title="Collateralized mortgage obligation">Collateralized mortgage obligation</a> (CMO)</li> <li><a href="/w/index.php?title=Collateralized_bond_obligation&action=edit&redlink=1" class="new" title="Collateralized bond obligation (page does not exist)">Collateralized bond obligation</a> (CBO)</li> <li><a href="/wiki/Collateralized_loan_obligation" title="Collateralized loan obligation">Collateralized loan obligation</a> (CLO)</li> <li><a href="/wiki/Collateralized_fund_obligation" title="Collateralized fund obligation">Collateralized fund obligation</a> (CFO)</li> <li><a href="/wiki/Senior_stretch_loan" title="Senior stretch loan">Senior stretch loan</a></li> <li><a href="/wiki/Structured_product" title="Structured product">Structured product</a></li></ul> </div></td></tr></tbody></table></div> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236075235"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"></div><div role="navigation" class="navbox" aria-labelledby="Derivatives_market" style="padding:3px"><table class="nowraplinks hlist mw-collapsible autocollapse navbox-inner" style="border-spacing:0;background:transparent;color:inherit"><tbody><tr><th scope="col" class="navbox-title" colspan="2"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1239400231"><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Derivatives_market" title="Template:Derivatives market"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Derivatives_market" title="Template talk:Derivatives market"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Derivatives_market" title="Special:EditPage/Template:Derivatives market"><abbr title="Edit this template">e</abbr></a></li></ul></div><div id="Derivatives_market" style="font-size:114%;margin:0 4em"><a href="/wiki/Derivatives_market" title="Derivatives market">Derivatives market</a></div></th></tr><tr><td class="navbox-abovebelow" colspan="2"><div><a href="/wiki/Derivative_(finance)" title="Derivative (finance)">Derivative (finance)</a></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Option_(finance)" title="Option (finance)">Options</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"></div><table class="nowraplinks navbox-subgroup" style="border-spacing:0"><tbody><tr><th scope="row" class="navbox-group" style="width:1%">Terms</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Delta_neutral" title="Delta neutral">Delta neutral</a></li> <li><a href="/wiki/Exercise_(options)" title="Exercise (options)">Exercise</a></li> <li><a href="/wiki/Expiration_(options)" title="Expiration (options)">Expiration</a></li> <li><a href="/wiki/Moneyness" title="Moneyness">Moneyness</a></li> <li><a href="/wiki/Open_interest" title="Open interest">Open interest</a></li> <li><a href="/wiki/Pin_risk" title="Pin risk">Pin risk</a></li> <li><a href="/wiki/Risk-free_interest_rate" class="mw-redirect" title="Risk-free interest rate">Risk-free interest rate</a></li> <li><a href="/wiki/Strike_price" title="Strike price">Strike price</a></li> <li><a href="/wiki/Synthetic_position" title="Synthetic position">Synthetic position</a></li> <li><a href="/wiki/Greeks_(finance)" title="Greeks (finance)">the Greeks</a></li> <li><a href="/wiki/Volatility_(finance)" title="Volatility (finance)">Volatility</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Vanilla_option" class="mw-redirect" title="Vanilla option">Vanillas</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/American_option" class="mw-redirect" title="American option">American</a></li> <li><a href="/wiki/Bond_option" title="Bond option">Bond option</a></li> <li><a href="/wiki/Call_option" title="Call option">Call</a></li> <li><a href="/wiki/Employee_stock_option" title="Employee stock option">Employee stock option</a></li> <li><a href="/wiki/European_option" class="mw-redirect" title="European option">European</a></li> <li><a href="/wiki/Fixed_income" title="Fixed income">Fixed income</a></li> <li><a href="/wiki/Foreign_exchange_option" title="Foreign exchange option">FX</a></li> <li><a href="/wiki/Option_style" title="Option style">Option styles</a></li> <li><a href="/wiki/Put_option" title="Put option">Put</a></li> <li><a href="/wiki/Warrant_(finance)" title="Warrant (finance)">Warrants</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Exotic_option" title="Exotic option">Exotics</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Asian_option" title="Asian option">Asian</a></li> <li><a href="/wiki/Barrier_option" title="Barrier option">Barrier</a></li> <li><a href="/wiki/Basket_option" title="Basket option">Basket</a></li> <li><a href="/wiki/Binary_option" title="Binary option">Binary</a></li> <li><a href="/wiki/Callable_bull/bear_contract" title="Callable bull/bear contract">Callable bull/bear contract</a></li> <li><a href="/wiki/Chooser_option" title="Chooser option">Chooser</a></li> <li><a href="/wiki/Cliquet_option" title="Cliquet option">Cliquet</a></li> <li><a href="/wiki/Commodore_option" title="Commodore option">Commodore</a></li> <li><a href="/wiki/Compound_option" title="Compound option">Compound</a></li> <li><a href="/wiki/Forward_start_option" title="Forward start option">Forward start</a></li> <li><a href="/wiki/Interest_rate_option" title="Interest rate option">Interest rate</a></li> <li><a href="/wiki/Lookback_option" title="Lookback option">Lookback</a></li> <li>Mountain range</li> <li><a href="/wiki/Rainbow_option" title="Rainbow option">Rainbow</a></li> <li><a href="/wiki/Spread_option" title="Spread option">Spread</a></li> <li><a href="/wiki/Swaption" title="Swaption">Swaption</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Options_strategy" title="Options strategy">Strategies</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Backspread" title="Backspread">Backspread</a></li> <li><a href="/wiki/Box_spread_(options)" class="mw-redirect" title="Box spread (options)">Box spread</a></li> <li><a href="/wiki/Butterfly_(options)" title="Butterfly (options)">Butterfly</a></li> <li><a href="/wiki/Calendar_spread" title="Calendar spread">Calendar spread</a></li> <li><a href="/wiki/Collar_(finance)" title="Collar (finance)">Collar</a></li> <li><a href="/wiki/Condor_(options)" title="Condor (options)">Condor</a></li> <li><a href="/wiki/Covered_option" title="Covered option">Covered option</a></li> <li><a href="/wiki/Credit_spread_(options)" title="Credit spread (options)">Credit spread</a></li> <li><a href="/wiki/Debit_spread" title="Debit spread">Debit spread</a></li> <li><a href="/wiki/Diagonal_spread" title="Diagonal spread">Diagonal spread</a></li> <li><a href="/wiki/Fence_(finance)" title="Fence (finance)">Fence</a></li> <li><a href="/wiki/Intermarket_spread" title="Intermarket spread">Intermarket spread</a></li> <li><a href="/wiki/Iron_butterfly_(options_strategy)" title="Iron butterfly (options strategy)">Iron butterfly</a></li> <li><a href="/wiki/Iron_condor" title="Iron condor">Iron condor</a></li> <li><a href="/wiki/Jelly_roll_(options)" title="Jelly roll (options)">Jelly roll</a></li> <li><a href="/wiki/Ladder_(option_combination)" title="Ladder (option combination)">Ladder</a></li> <li><a href="/wiki/Naked_option" title="Naked option">Naked option</a></li> <li><a href="/wiki/Straddle" title="Straddle">Straddle</a></li> <li><a href="/wiki/Strangle_(options)" title="Strangle (options)">Strangle</a></li> <li><a href="/wiki/Protective_option" title="Protective option">Protective option</a></li> <li><a href="/wiki/Ratio_spread" title="Ratio spread">Ratio spread</a></li> <li><a href="/wiki/Risk_reversal" title="Risk reversal">Risk reversal</a></li> <li><a href="/wiki/Vertical_spread" title="Vertical spread">Vertical spread</a> (<a href="/wiki/Bear_spread" title="Bear spread">Bear</a>, <a href="/wiki/Bull_spread" title="Bull spread">Bull</a>)</li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Valuation_of_options" title="Valuation of options">Valuation</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Bachelier_model" title="Bachelier model">Bachelier</a></li> <li><a href="/wiki/Binomial_options_pricing_model" title="Binomial options pricing model">Binomial</a></li> <li><a href="/wiki/Black_model" title="Black model">Black</a></li> <li><a href="/wiki/Black%E2%80%93Scholes_model" title="Black–Scholes model">Black–Scholes</a> (<a href="/wiki/Black%E2%80%93Scholes_equation" title="Black–Scholes equation">equation</a>)</li> <li><a href="/wiki/Finite_difference_methods_for_option_pricing" title="Finite difference methods for option pricing">Finite difference</a></li> <li><a href="/wiki/Foreign_exchange_option#Valuation:_the_Garman–Kohlhagen_model" title="Foreign exchange option">Garman–Kohlhagen</a></li> <li><a href="/wiki/Heston_model" title="Heston model">Heston</a></li> <li><a href="/wiki/Lattice_model_(finance)" title="Lattice model (finance)">Lattices</a></li> <li><a href="/wiki/Margrabe%27s_formula" title="Margrabe's formula">Margrabe</a></li> <li><a href="/wiki/Put%E2%80%93call_parity" title="Put–call parity">Put–call parity</a></li> <li><a href="/wiki/Monte_Carlo_methods_for_option_pricing" title="Monte Carlo methods for option pricing">MC Simulation</a></li> <li><a href="/wiki/Real_options_valuation" title="Real options valuation">Real options</a></li> <li><a href="/wiki/Trinomial_tree" title="Trinomial tree">Trinomial</a></li> <li><a href="/wiki/Vanna%E2%80%93Volga_pricing" title="Vanna–Volga pricing">Vanna–Volga</a></li></ul> </div></td></tr></tbody></table><div></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Swap_(finance)" title="Swap (finance)">Swaps</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Amortising_swap" title="Amortising swap">Amortising</a></li> <li><a href="/wiki/Asset_swap" title="Asset swap">Asset</a></li> <li><a href="/wiki/Basis_swap" title="Basis swap">Basis</a></li> <li><a href="/wiki/Commodity_swap" title="Commodity swap">Commodity</a></li> <li><a href="/wiki/Conditional_variance_swap" title="Conditional variance swap">Conditional variance</a></li> <li><a href="/wiki/Constant_maturity_swap" title="Constant maturity swap">Constant maturity</a></li> <li><a href="/wiki/Correlation_swap" title="Correlation swap">Correlation</a></li> <li><a href="/wiki/Credit_default_swap" title="Credit default swap">Credit default</a></li> <li><a href="/wiki/Currency_swap" title="Currency swap">Currency</a></li> <li><a href="/wiki/Dividend_swap" title="Dividend swap">Dividend</a></li> <li><a href="/wiki/Equity_swap" title="Equity swap">Equity</a></li> <li><a href="/wiki/Foreign_exchange_swap" title="Foreign exchange swap">Forex</a></li> <li><a href="/wiki/Forward_rate_agreement" title="Forward rate agreement">Forward Rate Agreement</a></li> <li><a href="/wiki/Inflation_swap" title="Inflation swap">Inflation</a></li> <li><a href="/wiki/Interest_rate_swap" title="Interest rate swap">Interest rate</a></li> <li><a href="/wiki/Overnight_indexed_swap" title="Overnight indexed swap">Overnight indexed</a></li> <li><a href="/wiki/Total_return_swap" title="Total return swap">Total return</a></li> <li><a href="/wiki/Variance_swap" title="Variance swap">Variance</a></li> <li><a href="/wiki/Volatility_swap" title="Volatility swap">Volatility</a></li> <li><a href="/wiki/Year-on-year_inflation-indexed_swap" title="Year-on-year inflation-indexed swap">Year-on-year inflation-indexed</a></li> <li><a href="/wiki/Zero_coupon_swap" title="Zero coupon swap">Zero Coupon</a></li> <li><a href="/wiki/Zero-coupon_inflation_swap" title="Zero-coupon inflation swap">Zero-coupon inflation-indexed</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><div class="hlist"><ul><li><a href="/wiki/Forward_contract" title="Forward contract">Forwards</a></li><li><a href="/wiki/Futures_contract" title="Futures contract">Futures</a></li></ul></div></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Contango" title="Contango">Contango</a></li> <li><a href="/w/index.php?title=Commodities_future&action=edit&redlink=1" class="new" title="Commodities future (page does not exist)">Commodities future</a></li> <li><a href="/wiki/Currency_future" title="Currency future">Currency future</a></li> <li><a href="/wiki/Dividend_future" title="Dividend future">Dividend future</a></li> <li><a href="/wiki/Forward_market" title="Forward market">Forward market</a></li> <li><a href="/wiki/Forward_price" title="Forward price">Forward price</a></li> <li><a href="/wiki/Forward_contract#Spot–forward_parity" title="Forward contract">Forwards pricing</a></li> <li><a href="/wiki/Forward_rate" title="Forward rate">Forward rate</a></li> <li><a href="/wiki/Futures_contract#Pricing" title="Futures contract">Futures pricing</a></li> <li><a href="/wiki/Interest_rate_future" title="Interest rate future">Interest rate future</a></li> <li><a href="/wiki/Margin_(finance)" title="Margin (finance)">Margin</a></li> <li><a href="/wiki/Normal_backwardation" title="Normal backwardation">Normal backwardation</a></li> <li><a href="/wiki/Perpetual_futures" title="Perpetual futures">Perpetual futures</a></li> <li><a href="/wiki/Single-stock_futures" title="Single-stock futures">Single-stock futures</a></li> <li><a href="/wiki/Slippage_(finance)" title="Slippage (finance)">Slippage</a></li> <li><a href="/wiki/Stock_market_index_future" title="Stock market index future">Stock market index future</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%"><a href="/wiki/Exotic_derivative" title="Exotic derivative">Exotic derivatives</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/w/index.php?title=Commodity_derivative&action=edit&redlink=1" class="new" title="Commodity derivative (page does not exist)">Commodity derivative</a></li> <li><a href="/wiki/Energy_derivative" title="Energy derivative">Energy derivative</a></li> <li><a href="/wiki/Freight_derivative" class="mw-redirect" title="Freight derivative">Freight derivative</a></li> <li><a href="/wiki/Inflation_derivative" title="Inflation derivative">Inflation derivative</a></li> <li><a href="/wiki/Property_derivative" title="Property derivative">Property derivative</a></li> <li><a href="/wiki/Weather_derivative" title="Weather derivative">Weather derivative</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Other derivatives</th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a class="mw-selflink selflink">Collateralized debt obligation (CDO)</a></li> <li><a href="/wiki/Constant_proportion_portfolio_insurance" title="Constant proportion portfolio insurance">Constant proportion portfolio insurance</a></li> <li><a href="/wiki/Contract_for_difference" title="Contract for difference">Contract for difference</a></li> <li><a href="/wiki/Credit-linked_note" title="Credit-linked note">Credit-linked note (CLN)</a></li> <li><a href="/wiki/Credit_default_option" title="Credit default option">Credit default option</a></li> <li><a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a></li> <li><a href="/wiki/Equity-linked_note" title="Equity-linked note">Equity-linked note (ELN)</a></li> <li><a href="/wiki/Equity_derivative" title="Equity derivative">Equity derivative</a></li> <li><a href="/wiki/Foreign_exchange_derivative" title="Foreign exchange derivative">Foreign exchange derivative</a></li> <li><a href="/wiki/Fund_derivative" title="Fund derivative">Fund derivative</a></li> <li><a href="/wiki/Fund_of_funds" title="Fund of funds">Fund of funds</a></li> <li><a href="/wiki/Interest_rate_derivative" title="Interest rate derivative">Interest rate derivative</a></li> <li><a href="/wiki/Mortgage-backed_security" title="Mortgage-backed security">Mortgage-backed security</a></li> <li><a href="/wiki/Power_reverse_dual-currency_note" title="Power reverse dual-currency note">Power reverse dual-currency note (PRDC)</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%">Market issues</th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Consumer_debt" title="Consumer debt">Consumer debt</a></li> <li><a href="/wiki/Corporate_bond" title="Corporate bond">Corporate debt</a></li> <li><a href="/wiki/Government_debt" title="Government debt">Government debt</a></li> <li><a href="/wiki/Great_Recession" title="Great Recession">Great Recession</a></li> <li><a href="/wiki/Municipal_debt" class="mw-redirect" title="Municipal debt">Municipal debt</a></li> <li><a href="/wiki/Tax_policy" title="Tax policy">Tax policy</a></li></ul> </div></td></tr><tr><td class="navbox-abovebelow" colspan="2"><div> <ul><li><span class="nowrap"><span class="noviewer" typeof="mw:File"><a href="/wiki/File:Emblem-money.svg" class="mw-file-description"><img alt="icon" src="//upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/16px-Emblem-money.svg.png" decoding="async" width="16" height="16" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/24px-Emblem-money.svg.png 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/f/f3/Emblem-money.svg/32px-Emblem-money.svg.png 2x" data-file-width="48" data-file-height="48" /></a></span> </span><a href="/wiki/Portal:Business" title="Portal:Business">Business portal</a></li></ul> </div></td></tr></tbody></table></div> <div class="navbox-styles"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><link rel="mw-deduplicated-inline-style" 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