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A 20 year history doesn't invalidate the facts at hand. The CDOs in the 2008 crisis were designed for uncorrelated risks, but in a real estate bubble driven by
by paulsutter 8y ago
A 20 year history doesn't invalidate the facts at hand.
The CDOs in the 2008 crisis were designed for uncorrelated risks, but in a real estate bubble driven by too-lax lending standards, the risks were all too correlated.
Before the downturn this was stated by the New York Times, numerous finance blogs, and this golden quote:
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
Chuck Prince, July 10th, 2007 (then Citigroup CEO)
- pmart123 8y agoAnother component to this is that the marketing materials in CLO products always highlight zero default history, even through 2008, but what if the government didn’t backstop AIG, the banks, GE, etc? Safer tranches were saved from default as a product of action by Paulson and the fed before there were more defaults rather than the perceived risk control imo.