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Collateralized Debt Obligation

The collateralized debt obligation (CDO) is used to present a mixture of loans and other underlying assets as huge collateral to large investment farms against capital. Although CDO was introduced back in 1987, it came into spotlight during the 2008 global crisis

With collateralized debt obligation, various small loads are combined and offered to an investment firm. These small loans include mortgages, student loans to even automobile leases. The idea is to create these smaller loans into bigger assets.

It is then further resold to bigger investment firms, while the initial defaulters of the loan are given a lump sum. Although CDO still remains one of the riskier investments, it still holds some practical usefulness in banks.


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