A previous version of this working paper was originally published in August 2011.

The authors identify these CDOs with data from Intex©. They estimate that 727 publicly traded SF ABS CDOs were issued between 1999 and 2007, totaling $641 billion. The authors describe how and why multi-sector CDOs became subprime CDOs and show why they were so susceptible to catastrophic loss. They then track the flows of subprime bonds into CDOs to document the enormous cross-referencing of subprime BBB bonds and credit default swaps (CDSs) into CDOs. The authors also show that lower rated tranches of CDOs were not sold and were largely recycled into CDO2s and other CDOs. They estimate that total write-downs on SF ABS CDOs will be $420 billion, 65 percent of the original issuance balance. The authors then analyze the determinants of expected losses on the deals and AAA bonds and examine the performance of dealers and rating agencies. Finally, they discuss the implications of their findings and the many areas for future work.