The role of ABS CDOs in the financial crisis

Larry Cordell, Greg Feldberg, Danielle Sass

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We examine the role of asset-backed security collateralized debt obligations (ABS CDOs) as a primary catalyst for the financial crisis. We show how ABS CDOs became the main investment vehicle for the riskiest investment-grade securities in the private-label mortgage market. We estimate a final tally of writedowns on ABS CDOs, $410 billion in total, with $325 billion assumed by AAA and “super-senior” securities, which had minimal capital, margin, or liquidity requirements. Pre-crisis regulations allowed excessive leverage at some firms investing in these securities, imperiling their solvency and placing them at the center of the financial crisis.

Original languageEnglish (US)
Pages (from-to)10-27
Number of pages18
JournalJournal of Structured Finance
Volume25
Issue number2
DOIs
StatePublished - Jun 2019
Externally publishedYes

ASJC Scopus subject areas

  • Finance

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