CDOs of CDOs: the quest for yield

9. CDOs-squared

The conundrum of overlapping is most visible in the market for CDOs of CDOs, or CDOs-squared, in which added leverage is generated with the CDO's underlying portfolio made up of CDOs. As CDOs-squared can themselves buy other CDOs-squared, it is also theoretically possible to construct CDOs-cubed. Nor, in theory, does the structure need to end there, given that these could in turn buy other CDOs-cubed, and so on.

CDOs-squared first appeared in 1999, but their popularity soared in 2001 and 2002 for

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