Collateralized Debt Obligations (CDOs) and
Asset Backed Securities (ABS)
An asset-backed security (ABS) is a type of debt security that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product. CDOs are constructed from a portfolio of fixed-income assets. These assets are divided into different tranches: senior tranches (rated AAA), mezzanine tranches (usually AA to BBB), and equity tranches (non-rated or unrated).
While the instruments were created to help finance the loans, Wall Street quickly learned they could use these instruments to increase their own earnings. Trillions of dollars worth of asset-backed securities both backed by real assets and synthetic CDOs were underwritten, bought and sold since the late 1990s.
Many of these securities were tied to borrowers with risky profiles, and bond agencies failed to recognize the "risks."
Many conservative investors were sold their exposed to these risks through their fixed-income investments and funds, financial stock holders, real estate investments, auction rate securities portfolios and money market funds.
The law office of Howard M. Rosenfield have represented investors with claims and losses due to inappropriate exposure to asset backed securities and collateralized debt obligations. Many who invested in these securities were misled by brokers and "pitch books" which claimed that their investments were "safe" and "conservative."
Financial advisers and brokers have a fiduciary duty to only recommend investments that are suitable to their clients' investment objectives and risk profiles. Asset backed securities and CDOs are entirely inappropriate for most of these investors and they should be entitled to an investment recovery.