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CDO’s- The Garbage Dump Of Securitization

When CDO’s were first introduced I thought maybe I just did not understand. You take junk that nobody wants, dump it into a box, mix it all together and out comes AAA paper. Magic. When I was very active in the early stages of developing CMBS, we always knew there was an issue of what to do with the low level paper and how do you securitize loans that did not have any real cash flow. If this could be solved then the volumes and profits would increase substantially. CDO’s to the rescue. As one of my capital markets friends recently commented, the definition of a good banker is one who dreams up ways to get around whatever the latest rules and regs are.  

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