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> mortgage securitization (CDOs) I don't think those things are synonymous. You can have mortgage securitization without CDOs. IIRC, the issue with CDOs was
by tablespoon 5y ago
> mortgage securitization (CDOs)
I don't think those things are synonymous. You can have mortgage securitization without CDOs.
IIRC, the issue with CDOs was they were used to "innovatively manufacture" "low risk" investments out of high risk assets. They were so complicated that sophisticated professional investors lost track of the underlying situation, made decisions based on a flawed model of them, then got caught with their pants down when their model failed.
- kasey_junk 5y agoAny argument against a CDO is implicitly an argument against a mortgage backed security. In fact, CDOs by their nature can be _more_ decoupled from systematic mortgage risk. So while you could theoretically have securitized mortgages without other kinds of CDOs its largely not something that makes mortgage securitization less risky.
- tablespoon 5y ago> Any argument against a CDO is implicitly an argument against a mortgage backed security. In fact, CDOs by their nature can be _more_ decoupled from systematic mortgage risk. I'm skeptical because it was CDOs that blew up, not more typical mortgage backed securities. I think the key phrase there is "can be." Complex software can be reliable, but it also can be a buggy mess or reliable except for that one bug that literally kills you. The complexity creates a situation it too much trouble to really understand it, so people treat it as a black box and just hand-wave and believe whatever they want. It seems CDOs had a similar problem, while perhaps regular MBS are simple enough that they don't.