In-depth introduction: CPDOs

The brochure, dated October 2006, refers to “a breakthrough in synthetic credit investments”, trumpeting the new product’s AAA rating and claiming it has a high probability of cashing in – or earning enough during the early years of its 10-year existence to meet its obligations without needing to take any further risk.

A year later, the market for constant proportion debt obligations (CPDOs) was dead, and investors were already sitting on heavy losses.

Since then, the question has been how the