Thursday, Jul 19, 2007
Explain it to me like I am a 6yr old....
Big Picture Blog: Just exactly what is a CDO?
Since everyone wants to blame today's whackage on the sub-prime debacle, lets look a little closer at CDOs. T
"CDOs were first set up in 1987 by bankers at now-defunct Drexel Burnham Lambert Inc., the home of one-time junk bond king Michael Milken. Junk, or high-yield, debt are rated below Baa3 by Moody's and BBB- by Standard & Poor's.
Bankers bundle what is often speculative-grade securities into a CDO, dividing it into pieces with credit ratings as high as AAA. The riskiest parts have no rating, and are known as the equity tranches because they are first in line for any losses. Investors in the equity portion expect to generate returns of more than 10%.
Posted by lvmreader @ 08:40 PM (171 views) Add Comment
1 Comment
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1. lvmreader said...