Cdo

The problem is that the connection between subprime default rates, on the one hand, and CDO valuations and default rates, on the other, is so complex that it's very difficult to say in a simple sense that a rise in mortgage defaults will lead to a rise in CDO defaults.

These CDOs had been so sliced and diced that it was possible to claim that a tier of the interest payments from the original borrowers was as dependable as a stream of income on a ten-year US Treasury bond, and therefore worthy of a coveted triple-A rating.