Home / Personal Finance / Lifestyle & Money
- Women in Business
- Financial Planning
- Lifestyle & Money
- On Topic
- Tools and Calculators
- Dave Ramsey’s 2009 Plasty Awards
-
Wednesday, February 11, 2009
The raging debate coming out of the news cycle is about what makes a role model.
-
Wednesday, February 11, 2009
On this Valentine’s Day weekend at this challenging time in our history, it simply feels right to be discussing the importance of self-love.
-
Wednesday, February 04, 2009
When it comes to our country’s economic woes, Americans young and old, from different classes, education levels, and political affiliations, are demonizing, mocking and deflecting the majority of the blame to chief executive officers.
-
Wednesday, February 04, 2009
We’re a month into 2009 and I’m already tired of the good vs. evil, black vs. white mentality that seems to dominate every discussion on finances. Can we get into some gray area? Maybe venture into the world of nuance?
-
Wednesday, January 28, 2009
A look at the different attitudes and solutions people have with regard to their finances
Travel & Lifestyle
Career Center
Personal Technology
Health & Insurance
FEATURES / RECOMMENDED READING
- Five Tax Breaks for Drivers
- Working: Charity Begins at Work
- Working: Taking Charge of Your Career: Board Games
- Bewildering Options
- Extended Warranty Rip-Offs
- GM, Ford Score Highly in Dependability
- Bragging Rights
- Quirky Credit Card Deals
- What's Next for Real Estate?
- Toyota Dominates Quality Rankings
-
Art & Entertainment : KrelWear 2009 Resort Collection
Thu, 18 Sep 2008 | 5:37 pm -
Eat & Drink : Best Burger: Le Tub
Sat, 26 Jan 2008 | 5:28 pm -
Ideas : Giving: Howard Buffett
Wed, 17 Sep 2008 | 2:52 pm -
Real Estate : Esther's Island Green Build
Mon, 17 Nov 2008 | 3:11 pm -
Social : Sundance Sunday
Thu, 18 Sep 2008 | 5:43 pm -
Sport & Outdoors : Birds of Prey 2008
Thu, 15 Jan 2009 | 4:23 pm
FOX Translator
No data currently available.
No data currently available.
Welcome to the major leagues of debt. Collateralized debt obligations, almost always referred to as a CDOs, are horrendously
complicated deals that often leave anyone without a MBA wondering what was put into these CDOs.
The first thing to
understand about bonds, (aka debt) is that bonds are often backed by something else. Think about your home mortgage. If you
don't pay your mortgage, the bank can take the house. You end up homeless, and the bank sells the house to pay off the rest
of that mortgage. There is something "backing" that mortgage; something lender can fall back on, if you don't pay your bills
like a good human being. That's called collateral.
CDOs are one flavor of an entire sector of investing called structured
finance, and they are also backed. CDOs, in the simplest concept, are just bonds backed by something else. In most cases,
a CDO is backed by a collection of various types of debt. CDOs can be home mortgages, or other types of debt like credit cards,
auto loans, and personal loans. Most of these types of debt are usually considered a bit more risky and they don't have the
backing that a home loan does. So, if you think it through, you can imagine that CDOs are usually considered a risky investment.
To take a step further, understand that CDOs have multiple flavors within each CDO. These flavors are called tranches. If you've taken French, you might recognize the word, it means "slice" or "portion." Each slice of that CDO you invest in is a little different and carries different amounts of risk.
You could invest in the lowest risk tranche of the CDO, which would
provide you lower risk. But, you don't get a good return on that investment. Or, you can be the heroic adventurer of bonds
and invest in the lowest-grade tranche of the CDO. You'll make an amazing return, but if the economy even looks at you wrong,
you might lose the entire investment.
CDOs aren¿t easy, and are almost always invested in by mutual funds, insurance
companies and hedge funds. As an individual investor, you will probably not come across a CDO you can participate in.