The key difference between a cash and synthetic CDO is: instead of selling the reference portfolio (loans), the originator (bank) purchases credit protection with credit default swaps (CDS)
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leejae July 18th, 2010 at 4:54 am
Thanks for the explanation! It really helped out!
benfnkendra02 July 18th, 2010 at 6:20 am
i just turned 21, and im trying to understand this, I feel like in terms of math I went from the caveman 1+2=3 to calculus. any suggestions on where to start for this?
kchowta July 18th, 2010 at 6:37 am
good one mate…thanks it was very helpful
kchowta July 18th, 2010 at 7:05 am
good one mate…thanks it was very helpful
pussyfever July 18th, 2010 at 7:14 am
You just say it in a subordinated clause: The CDO ist fully funded! That’s essential, cause you exclude counterparty risk with issuing Credit Link Notes.
lalocamd July 18th, 2010 at 7:29 am
Thanks so much for this. I have gained a good knowledge of what all the NEWS is about. This reminds me of how craps is played in Vegas. Regarding your illustration – I found it very easy to follow. It reminds me of a biochemical enzyme cascade (Those are REALLY cool!!!) 
zwarst July 18th, 2010 at 8:28 am
soon we shall say cd-oh dear…
Eggy0 July 18th, 2010 at 9:26 am
There’s an impending financial collapse scenario involving synthetic CDOs being highlighted in these videos:-
watch?v=Z8EHcHjsZMk
watch?v=Il1_A77OAIQ
Interested to hear the opinion of someone who understands them!
nickstar717 July 18th, 2010 at 10:21 am
cdo is a massive scam, jus think if only 9 of the 100 big companies go bankrupt, it means DESTRUCTION for everyone. fuck i hate cdo more power to those fucked up bankers
bionicturtledotcom July 18th, 2010 at 11:02 am
The high quality asset part is true, it’s not the weak link. I don’t disagree with your conclusion, but in order to identify good versus bad securitization (which after all is generally useful), we’ve got to first understand it. David
StevenL001 July 18th, 2010 at 12:01 pm
I like the bit where you mention the ‘Risk-free High Quality Asset’ earning interest.
How did it earn interest exactly? Don’t tell me they bought more CDO’s with it!
I’m sure this all looked very smart at the time, the fact is a lot of these things are full of lemons. The only motivation was to keep the whole ponzi scheme going and make sure the bosses got another years worth of mega bonuses.
Got to hand it to them thought – this was one hell of a scam!
KLguy133 July 18th, 2010 at 12:44 pm
Ha , lawyers are the most innumerate dumbos I ever came across.
adeptusluminati July 18th, 2010 at 1:06 pm
This has got to be the most clear explanation of CDO’s I’ve seen, and I’m still confused. I might have to watch this another 3 times before it sinks in. I’d like to see the judges in courts trying to make sense of this insanity when the financial markets blow up in the next year and corps get sued left right and centre.
fourwindsoh July 18th, 2010 at 5:53 am
They worked great for Goldman Sachs HAHAHA