I think I get it. For some reason I thought CDOs were kind of like bonds or annuities based on the mortgage payments, but I didn't realize that if you bought a

I think I get it. For some reason I thought CDOs were kind of like bonds or annuities based on the mortgage payments, but I didn't realize that if you bought a CDO from someone you were also buying the underlying assets. So in the first scenario I thought banks were on the hook for reimbursing mortgage payments to the CDO holders, but in actuality whoever held the CDO was the one getting screwed. However, even if banks were forced to sell off their CDOs, I don't quite see how that devalues the properties. Selling a CDO for a lower rate than before might simply suggest a reduced rate of people making their mortgage payments. For example if I have given Bob a mortgage on a house worth $100, expect to make $10 from interest, and think Bob has a 10% chance of defaulting, wouldn't the value of the CDO be roughly $109 (ignoring that the amount of time into the mortgage at which he defaults affects the price), because even if Bob does default, I still own the $100 house? And then let's say I run into liquidity trouble and need to sell this CDO for $101 (over $100 because my own liquidity problems don't necessarily affect Bob's), that doesn't seem to affect the value of Bob's mortgage at all. Was the problem that the only institutions that could actually buy CDOs were banks themselves? So then if they were all illiquid, there was nobody who could even buy that many assets at once.