CDO-Squared is an investment in the form of a
special-purpose entity (SPE) with securitization payments backed by
collateralized debt obligation
A collateralized debt obligation (CDO) is a type of structured finance, structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing Mortgage-backed se ...
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
In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
The document evidencing the debt ( ...
,
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
In financial markets, a share (sometimes referred to as stock or equity) is a unit of equity ownership in the capital stock of a corporation. It can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Sha ...
of the collateralized debt obligation. It is a way to invest in multiple credit instruments and diversify risk.
These instruments became popular before the
2008 financial crisis
The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
. There were 36 CDO-Squared deals made in 2005, 48 in 2006 and 41 in 2007.
Merrill Lynch
Merrill Lynch, Pierce, Fenner & Smith Incorporated, doing business as Merrill, and previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investm ...
was a big producer, creating and selling 11 of them.
The collapse of the market for collateralized debt obligations and CDO-Squared contributed to the 2008
subprime mortgage crisis
The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...
.
Goldman Sachs
The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...
appears to be the last bank to hold CDOs-Squared, holding $50 million (~$ in ) in June 2018.
2004
*Abacus 2004-2
*Abacus 2004-3
*ACA 2004-1
*Cascade Funding I
*Crystal Cove
*Davis Square Funding III
*Dunhill
*E-Trade III
*Glacier Funding I
*Glacier Funding II
*Independence V
*Jupiter High Grade
*Lakeside II
*Sierra Madre Funding
2005
*Abacus 2005-1
*Abacus 2005-2
*Abacus 2005-3
*Abacus 2005-5
*Adirondack 2005-1
*Altius I Funding
*Broderick 1
*Camber 3 Plc
*Class V Funding
*Coolidge Funding
*Davis Square Funding IV
*E-Trade IV
*Fort Sheridan
*Glacier Funding III
*G Street Finance
*Huntington
*Independence VI
*Jupiter High Grade I
*Jupiter High Grade II
*Jupiter High Grade III
*Khaleej II
*Kleros Preferred Funding
*Lenox
*Lexington Capital Funding
2006
*Auriga
*Bernoulli High Grade I
*Broadwick Funding
*Broderick 2
*Class V Funding II
*Commodore V
*Davis Square Funding VI
*Fortius II Funding
*GSC 2006-2m
*Hout Bay 2006-1
*Hudson High Grade Funding 2006-1
*Hudson Mezzanine Funding 2006-1
*Independence VII
*Ipswich Street
*Jupiter High Grade IV
*Kleros Preferred Funding II
*Kleros Preferred Funding III
*Kleros Real Estate I
*Kleros Real Estate II
*Kleros Real Estate III
*Libertas Preferred Funding I
*Octans I
*Pampelonne I
*West Coast Funding I
2007
*Abacus 2007-AC1
*Glacier Funding V
*Newbury Street
*Norma I
*Point Pleasant 2007-1
*Timberwolf 1
*Vertical 2007-1
*Volans
References
Sources
*
Derivatives (finance)
United States housing bubble
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