Wednesday, October 8, 2008

CDOs Explained

Many in the financial industry believe that dodgy ratings devised by ratings agencies (such as Standard and Poors and Moodys) of various mortgage backed financial products are a significant cause of why the economic meltdown occured. And one of those financial products, CDOs, is particularly to blame for the collapse of the financial sector. CDOs or Collateralized Debt Obligations are "derivatives" or financial products derived from the mortgage market. Here is a great explanation of CDOs from khanacademy (which incidentally has a series of great videos on the whole housing mess) on You Tube.

Next we'll explore why the ratings agencies gave Triple A ratings to some CDOs when they clearly knew that the products were backed up sub-prime mortgage loans given to people who were highly likely to default. Why were they able to commit such fraud, and who was in charge?

No comments: