AOL Money & Finance

Why are CDOs so important?

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The New York Federal Reserve Bank and AIG have set up a special fund to buy CDOs (credit default obligations). They are buying $16 billion dollars of CDOs, which will free up the underlying credit default swaps and relieve some of the pressure from AIG.

CDOs have been one big factor in the credit crisis we are now facing. Not only AIG, but major banks as well are still holding CDOs "off the books." A big step forward toward more transparency would be for banks to disclose these CDO holdings and put them "on the books."

There is no way of knowing the total amount of these CDOs until there is full disclosure. These obligations are "hidden" from investors and it is difficult if not impossible to determine the share value of a given bank.

What are your thougts on this matter?

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Last updated: November 25, 2009: 11:14 AM

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