Whats a C.D.O. (Collateralized dept obligation)?

Whats a C.D.O. (Collateralized dept obligation)?

Wall Street giants like Citigroup and Merrill Lynch have been severely shaken by their losses on an arcane innovation in finance: collateralized dept obligations, or C.D.O.'s.

Worldwide, there is more than $1.3 trillion invested in C.D.O.'s. Residential mortgage-backed securities, or R.M.B.S., make up 56 percent of the assets in C.D.O.'s. So the slump in housing has had a huge ripple effect on these investments.

Here's how a C.D.O. works.

http://www.portfolio.com/interactive-features/2007/12/cdo