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Wikipedia About CDOs

For: CDO

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs are assigned different risk classes, or tranches, whereby "senior" tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk.

A few academics, analysts and investors such as Warren Buffett and the IMF's former chief economist Raghuram Rajan warned that CDOs, other ABSs and other derivatives spread risk and uncertainty about the value of the underlying assets more widely, rather than reduce risk through diversification. With the advent of the 2007-2008 credit crunch, this view has gained substantial credibility. Credit rating agencies failed to adequately account for large risks (like a nationwide collapse of housing values) when rating CDOs and other ABSs.

Many CDOs are valued on a mark to market basis and thus have experienced substantial write-downs on the balance sheet as their market value has collapsed.

Market history and growth

The first CDO was issued in 1987 by bankers at now-defunct Drexel Burnham Lambert Inc. for Imperial Savings Association, a savings institution that later became insolvent and was taken over by the Resolution Trust Corporation on June 22, 1990. A decade later, CDOs emerged as the fastest growing sector of the asset-backed synthetic securities market. This growth may reflect the increasing appeal of CDOs for a growing number of asset managers and investors, which now include insurance companies, mutual fund companies, unit trusts, investment trusts, commercial banks, investment banks, pension fund managers, private banking organizations, other CDOs and structured investment vehicles.

CDOs offered returns that were sometimes 2-3 percentage points higher than corporate bonds with the same credit rating.

It may also reflect the greater profit margins that CDOs provide to their manufacturers.

A major factor in the growth of CDOs was the 2001 introduction by David X. Li of Gaussian copula models, which allowed for the rapid pricing of CDOs.

In late 2005 research firm Celent estimated the size of the global CDO market at USD 1.5 trillion and projected that the market would grow to nearly USD 2 trillion by the end of 2006.

Concept

CDOs vary in structure and underlying assets, but the basic principle is the same. A CDO is a type of Asset-backed security. To create a CDO, a corporate entity is constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

  • A special purpose entity (SPE) acquires a portfolio of underlying assets. Common underlying assets held include mortgage-backed securities, commercial real estate bonds and corporate loans.

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News about CDOs

U.S. judge: Lawsuit over losses belongs in state, not federal court

Kenosha NewsA judge says state court instead of federal court is the proper place to decide a lawsuit filed by five school districts, including Kenosha Unified, against two firms over investments that resulted in millions of dollars in losses.http://www.kenoshanews.com/news/change_of_venue_for_cdo_4735...

Kensington Blake Capital and KB Capital Advisors Sign 13th Contract in Fourteen Weeks; Advises on TALF, PPIP and ...

PRWeb via Yahoo! NewsThe global credit crisis and financial market turmoil have created opportunities and challenges for financial market participants. Kensington Blake Capital has helped a number of clients navigate this difficult period and will continue to guide them through the daily machinations of the structured products market and the US Government's role in it.http://news.yahoo.com/s/prweb/20090411/bs_prweb/prweb2314344...

London City Boy Bares Secret of Credit Craze, Debauchery: Books

BloombergA Gen-X banker whose CV lists jobs at Goldman Sachs Group Inc. and Morgan Stanley , he has written what sounds like a confessional memoir, “How I Caused the Credit Crunch.”http://www.bloomberg.com/apps/news?pid=20601088&sid=a8m7w1Ga...

Celebrated economist wins vote of politicians

Daily TelegraphWhen Richard Thaler first met Barack Obama when he was campaigning for the Senate he thought the politician was destined for a slide back into obscurity.http://www.telegraph.co.uk/finance/economics/5137325/Celebra...

S&P Puts 33 CDO Tranches Worth $1.33 Billion On Watch For Downgrade

NasdaqStandard & Poor's Ratings Service placed its ratings on 33 tranches from 33 U.S. synthetic collateralized debt obligation transactions worth about $1.33 billion on watch for downgrade.http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20090...

News about Cdos

A chance for bankers to refocus their talents

Financial TimesUntil three years ago, smart, numerate students took it for granted that one of the fastest ways to become rich and successful was to dive into the world of complex finance, producing structures such as collateralised debt obligations (CDOs). Now ... http://www.ft.com/cms/s/0/00175110-22da-11de-9c99-00144feabd...

A trader's tour of Wall Street

Guardian Unlimited ... for more "sophisticated" tourists. "People want answers to what's happened," Luan tells me. "I'm trying to personalise Wall Street by attaching names and faces to different landmarks." Frankly, it sounds a far more useful job than trading CDOs.http://www.guardian.co.uk/business/andrew-clark-on-america/2...

UPDATE 1-S&P says recent US CMBS highly susceptible to cuts

Reuters ... have already soared 180 percent since September 2008 and 43 percent this year, to 1.57 percent, it said. As a result of rating actions on CMBS, S&P said it expects to put many ratings on commercial real estate collateralized debt obligations (CRE CDOs ... http://www.reuters.com/article/bondsNews/idUSN06411126200904...

CIB Marine Bancshares, Inc. Announces That It Held Informational ...

MSN MoneyCentralThe company is in the process of gathering votes from all trust preferred securities holders, including the holders of securities that represent a part of the collateral pool for the following CDOs in which senior bondholders are eligible to vote ... http://news.moneycentral.msn.com/provider/providerarticle.as...

Fitch Takes Various Rating Actions on Inman Square Funding I, Ltd ...

Businesswire.comThe rating actions are due to Fitch's recently adjusted default and recovery rate assumptions for analyzing structured finance (SF) CDOs, in addition to negative credit migration in the underlying portfolio. The portfolio is ... http://www.businesswire.com/news/home/20090409006047/en

Search results for Cdos

CDOs Flicker to Life With Babson, Deutsche Takeovers (Update2 ...

By Neil Unmack and Pierre Paulden. May 14 (Bloomberg) -- Collateralized debt obligations, the securities that contributed to $335 billion of bank writedowns, 65,000 job losses and ... http://www.bloomberg.com/apps/news?pid=20601109&sid=aqwp6D3M...

CDOS meaning - Acronym Attic

sort by Rank | Alpha; Possible Meanings Rank; Career Development and Occupational Studies **** Centre for Development of Stones *** Customer Data and Operations Systemhttp://www.acronymattic.com/CDOS.html

CDOS - What does CDOS stand for? Acronyms and abbreviations by the ...

Acronym Definition; CDOS: Concurrent Disk Operating System: CDOS: Combat Day of Supply: CDOS: Customer Data & Operations Systemhttp://acronyms.thefreedictionary.com/CDOS

CDOs

Structured Finance News, the premier guide to the global securitization industry, provides comprehensive, in-depth analysis of the entire structured finance realm and offers a ... http://www.structuredfinancenews.com/section/cdo.html

Collateralized Debt Obligation

For someone who is new to CDOs, the instruments can seem difficult to understand. This is because there are actually a variety of different instruments that are all ... http://www.riskglossary.com/link/collateralized_debt_obligat...

Wikipedia results for Cdos

Collateralized debt obligation - Wikipedia, the free encyclopedia

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets.http://en.wikipedia.org/wiki/Collateralized_debt_obligation

Cromemco - Wikipedia, the free encyclopedia

The Z-1 was succeeded by the Z-2 in June 1977, which featured 64K of RAM and the ability to run CDOS, a variant of the CP/M operating system. [3]http://en.wikipedia.org/wiki/Cromemco

Synthetic CDO - Wikipedia, the free encyclopedia

Synthetic CDOs can either be single tranche CDOs or fully distributed CDOs. Synthetic CDOs are also commonly divided into balance sheet and arbitrage CDOs, although it is often ... http://en.wikipedia.org/wiki/Synthetic_CDO

Secondary mortgage market - Wikipedia, the free encyclopedia

The risk of the individual loans is reduced by that aggregation process. [citation needed] These securities are collateralized debt obligations (CDOs).http://en.wikipedia.org/wiki/Secondary_mortgage_market

Credit derivative - Wikipedia, the free encyclopedia

This synthetic securitization process has become increasingly popular over the last decade, with the simple versions of these structures being known as synthetic CDOs; credit ... http://en.wikipedia.org/wiki/Credit_derivative
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Videos found for CDOs

JOHN THAIN on managing risk, CDOs a...

JOHN THAIN on managing risk, CDOs and monolinesRecently installed CEO puts Merrill Lynch back on trackFlash - Video

Understanding CDO's and How We Got ...

Understanding CDO's and How We Got Into the Financial MessUnderstanding CDO's and How We Got Into the Financial MessFlash - Video

Breaking News: General Motors may b...

Breaking News: General Motors may be forced into bankruptcy - CDO's one step closer to collapsinghttp://www.bloomberg.com/apps/news?pid=20601087&sid=ad_m06A_gtLk&refer=home General Motors may face bankruptcy (forced). CDO's (Collateralized/Collateralised Debt Obligation) one...Flash - Video

Distressed Investing 2008: CDO's vs...

Distressed Investing 2008: CDO's vs. CLO'sRobert Contreras of Deerfield Capital Management breaks down the difference between CDO's and CLO's at The Deal's 2008 Distressed Investing Conference. For complete coverage, read...Flash - Video

Bailout 11: Why these CDOs could be...

Bailout 11: Why these CDOs could be worth nothingWhy a CDO could be worth nothing even though they are "collateralized".Flash - Video

Answers for CDOs

Small Enough to FailSo did betting against subprime mortgages with CDOs turn out to be a good investment after all?Small Enough to FailIt was definitely a good investment for inside traders. That is about all though. I will never believe AIG saw "losses" (of that amount)in the last quarter. I believe that they are "righting" their...Pro ConHow is Pimco going to help with some of the mortgage CDOs?Pro ConPIMCO's rating can be attributed to the depth and experience of its structured finance portfolio managers, their strong internal control environment, and their commitment to consistent and ongoing ass...Vagen THow can an individual investor invest in CDOs?Vagen TOne way is to buy them directly from an asset manager. Here is a partial list: http://en.wikipedia.org/wiki/List_of_CDO_Managers Best of success.F FWho now actually owns the houses whose mortgages were bundled (CDOs etc...) and sold on to the banks?F FThe mortgage trust vehicle in which the mortgages were packaged is the owner. The servicer attached to the trust is the "contact" point for any negotiations, etc.smartie_pantalonesWhat are CDOs, in layman's terms?smartie_pantalonesCollateralized Debt Obligations. Basically insurance (more like a hedge) for people/insitutions that bought risky mortgage securities.
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