Collateralized debt obligations slice pooled debt into tranches whose risk depends on opaque re‑securitizations and on ratings derived from other securities. When the underlying collateral (MBS tranches) degrades, losses cascade through complex CDO structures (CDO‑squared, synthetic CDOs) and market participants who relied on ratings and short‑term funding experience sudden systemic failure.
— Transparent limits on tranche repackaging, rating‑agency accountability, and disclosure of collateral composition are public‑policy priorities because CDO dynamics create outsized, system‑wide risk from distributed, hidden exposures.
2026.01.05
100% relevant
Wikipedia notes post‑2002 CDOs increasingly refinanced mortgage‑backed securities and that by 2006–07 CDO collateral was dominated by BBB/A tranches recycled from subprime MBS—an explicit mechanism linking securitization structure to systemic vulnerability.
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