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CDO Squared

A CDO squared, or collateralized debt obligation squared, is a complex financial instrument made up of other CDOs. Essentially, it pools different types of debt, such as loans or mortgages, and packages them into bonds that investors can buy. The "squared" aspect means that these bonds are backed by the cash flows from other CDOs, adding another layer of complexity and risk. This structure aims to offer higher returns, but it can also amplify risks, as it ties investors' fortunes to the performance of multiple underlying debts and their CDOs.

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    CDO Squared refers to a financial product known as a collateralized debt obligation squared. Essentially, it's a complex investment structure made up of various layers of other CDOs. Investors pool money to buy these debt securities, which are filled with loans, bonds, or other debts. The goal is to earn returns by managing the risk associated with those debts. However, CDO Squared can be risky because its value depends on the performance of multiple underlying assets, making it a more intricate investment than standard CDOs. This complexity contributed to the financial instability seen during the 2008 crisis.