Speaking of CDOs, this came in my email today:
I was involved in structuring the very first CDO squared…a deal that won Derivatives Deal
of the Year in 1999. It was a CDO composed of BBB tranches of other CDOs. …We figured out that the AAA piece shouldn’t be AAA, that the rating agencies didn’t understand correlation. We decided not to tell the #1 guy as he needed all his optimism to sell the deal.