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As CDOs developed, some sponsors repackaged tranches into yet another iteration, known as "CDO-Squared", "CDOs of CDOs" or "synthetic CDOs". [ 8 ] In the early 2000s, the debt underpinning CDOs was generally diversified, [ 9 ] but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this had changed.
The Securities and Exchanges Commission's allegations about Goldman Sachs (GS) fraudulently selling a synthetic collateralized debt obligation called Abacus raise several fundamental questions ...
source: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, p.229, figure 11.4 Credit rating agencies came under scrutiny following the mortgage crisis for giving investment-grade, "money safe" ratings to securitized mortgages (in the form of securities known as mortgage-backed securities (MBS) and collateralized debt obligations ...
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CDO-Squared is an investment in the form of a special-purpose entity (SPE) with securitization payments backed by collateralized debt obligation 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, asset-backed securities, and other credit instruments.
A synthetic CDO is a variation of a CDO (collateralized debt obligation) that generally uses credit default swaps and other derivatives to obtain its investment goals. [1] As such, it is a complex derivative financial security sometimes described as a bet on the performance of other mortgage (or other) products, rather than a real mortgage security. [2]