CDO assets were money losing for people who mispriced them. CDOs are a class of instrument similar to insurance in terms of payout. You collect very regular pre

CDO assets were money losing for people who mispriced them. CDOs are a class of instrument similar to insurance in terms of payout. You collect very regular premium and occasionally have to pay out big when a claim cones in. This is a valuable investment vehicle for people who know what they are doing. They all come under the umbrella of negatively skewed investments, that is, the distribution of returns on these investments have a negative skew. They are fat tailed to infrequent but large drawdowns. Short selling options is another strategy with this profile for example. In this respect, I'd argue that We is very much playing the CDO game. They enter into long term leases and sell short term leases, harvesting the spread. They take on the risk of finding enough short term tenants to pay for the long term commitments, and their profit is the premium for this risk. This trade will make a reliable but small margin during good economic environments, but they have to leverage it up a lot to actually make money over fixed costs. What happens when recession hits? Nobody knows, but it is fair to assume that people will cut high cost, easily broken contracts first - exactly We's revenue source. On the other end, We is on hook for all the long commitment contracts. Sure, they can just atop honoring the leases and shutter the subsidiaries who actually signed the leases, but this is signing their own death warrant because who will do business with them afterwards? So I'm seeing a lot of indications of a negatively skewed pnl profile, with not a peep about how We plans to hedge them.