Structured Finance Quotes

You can't explain collateralized debt obligation in a novel - it's too draggy.

The collateralized debt obligation, the CDO, is a structure which allows you to more or less continuously choose how much risk you want to take in a whole batch of securities. And the reason why they got us into so much trouble is that it's hard to figure out how much risk you really are taking.

Ratings agencies are the glue that ostensibly holds the entire financial industry together.

In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk.

There are a lot of ways that investment banking models work, but these risks are not internalized by the people that are taking them.

In early 2005, I really studied the prospectuses of these mortgage pools that were tranched out into different-rated slices rated by agencies like S&P and Moody's. They had names like Park Place and People's Choice. It was clear to me that many of the buyers of these repackaged subprime mortgages were doing little analysis.

I think what we need is better understanding of how to do risk analysis of a CDO, but that they still can perform a very valuable function because they can aggregate these risks and pass them around so that mortgages or other kinds of loans can be packaged and sold to investors all over the world, who in most times, would justify a small amount of each one.

A credit default swap was confusing mainly because it wasn't really a swap at all. It was an insurance policy, typically on a corporate bond, with semiannual premium payments and a fixed term.

The CDO was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.