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

See all articles by Greg Feldberg

Greg Feldberg

Yale University - Yale Program on Financial Stability; Yale School of Management

Larry Cordell

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Danielle Sass

Department of Statistics

Date Written: August 1, 2019

Abstract

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

Feldberg, Greg and Cordell, Larry and Sass, Danielle, The Role of ABS CDOs in the Financial Crisis (August 1, 2019). Cordell, Larry; Feldberg, Greg; Sass, Danielle. Journal of Structured Finance; New York Vol. 25, Iss. 2, (Summer 2019): 10-27, Available at SSRN: https://ssrn.com/abstract=3443043

Greg Feldberg (Contact Author)

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Larry Cordell

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Danielle Sass

Department of Statistics ( email )

Champaign, IL 61820
United States

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