Interactive graphics at their best, this.
Network scientist Valedis Krebs has created a visualisation of ownership in Collateralized Debt Obligations (CDOs) — all that securitised cross-ownership.
To make it, he’s used the (2007) CDO ownership data dug up by ProPublica during its “banks self-dealing” campaign. According to Krebs the thing to focus on here is not the number of arrows spreading from any one node, but their direction. And on that basis the CDOs most likely to “infect the rest of the network if they contain failed securities [are] GSC ABS CDO 2006-2 LTD or West Trade Funding CDO I.”
Pity, then, that GSC ABS CDO 2006-2 was 80 per cent packed with subprime Residential Mortgage-Backed Securities (RMBS) from 2005- and 2006-vintages. West Trade Funding, meanwhile, consisted of 25 per cent prime and 50 per cent subprime RMBS, plus 25 per cent, erm, other CDOs. Well, you get the idea… When a subprime CDO sneezes, the rest of the financial system catches a cold.
Go here to play around with the giant influenza-like CDO contagion.
(H/T Financial Network Analysis)
Related links:
Structured finance 101 - FT Alphaville
“What happens To MBS and CDOs and CDS when subprime defaults rise?” - Naked Capitalism, 2007