CDOs (Collateralized Debt Obligations)

Collateralized Debt Obligations (CDOs) are financial instruments that pool together various types of debt, such as loans and bonds, and sell them as packages to investors. These packages are divided into different risk categories, allowing investors to choose the level of risk they are comfortable with. By pooling debts, CDOs aim to provide better returns while spreading out the risk of default. However, during the 2008 financial crisis, many CDOs lost value, leading to significant losses for investors, highlighting the risks involved in these complex financial products.