All those arrows
A very cogent analysis of the CDO industry over at the London Review of Books, based on Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe, the new book by Gillian Trent, the capital markets editor of the Financial Times.
The primary premise being, the first use of the CDO was to package up a wide variety of corporate debt with a reasonably low correlation for risk of default. The use of similar low correlation numbers for CDO’s backed by MBS’ however was grossly incorrect. A must read!