The Role of ABS CDOs in the Financial Crisis
Cordell, Larry; Feldberg, Greg; Sass, Danielle. Journal of Structured Finance; New York Vol. 25, Iss. 2, (Summer 2019): 10-27
Posted: 30 Aug 2019
Date Written: August 1, 2019
We examine the role of asset-backed security collateralized debt obligations (ABS CDOs) as a primary catalyst for the financial crisis. We show how ABS CDOs became the main investment vehicle for the riskiest investment-grade securities in the private-label mortgage market. We estimate a final tally of writedowns on ABS CDOs, $410 billion in total, with $325 billion assumed by AAA and “super-senior” securities, which had minimal capital, margin, or liquidity requirements. Pre-crisis regulations allowed excessive leverage at some firms investing in these securities, imperiling their solvency and placing them at the center of the financial crisis.
Keywords: asset-backed securities (ABS), credit risk management, financial crises and financial market history
Suggested Citation: Suggested Citation