CDO-Squared

CDO-Squared is an investment in the form of a special-purpose entity (SPE) with securitization payments backed by collateralized debt obligation tranches. A collateralized debt obligation is a product structured by a bank in which an investor buys a share of a pool of bonds, loans, asset-backed securities, and other credit instruments. Payments resulting from those bonds, loans, asset-backed securities, and other instruments are then passed on to the holders of the shares of the collateralized debt obligation. It is a way to invest in multiple credit instruments and diversify risk.[1][2] These instruments became popular before the 2008 financial crisis. There were 36 CDO-Squared deals made in 2005, 48 in 2006 and 41 in 2007. Merrill Lynch was a big producer, creating and selling 11 of them.[3]

The collapse of the market for collateralized debt obligations and CDO-Squared contributed to the 2008 subprime mortgage crisis.[2] Goldman Sachs appears to be the last bank to hold CDOs-Squared, holding $50 million (~$61.3 million in 2024) in June 2018.[4]

[5]

References

  1. ^ "CDOs-Squared Demystified" (PDF). Nomura Fixed Income Research. 2005. Retrieved 2018-10-04.
  2. ^ a b "Collateralized Debt Obligation (CDO-Squared) Overview". Investopedia. Retrieved 2024-11-28.
  3. ^ The Financial Crisis Inquiry Report, 2011, p.203
  4. ^ Woodall, Louie (2018-10-03). "Goldman Sachs is last major bank holding CDO squared". Risk Quantum.
  5. ^ "CDO Library : Financial Crisis Inquiry Commission".

Sources

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