Tuition costs have risen 710% since 1983 (1200% since 1980). Inflation: 194%

Re:Tuition costs have risen 710% since 1983 (1200% since 198... by pixelatedindex on Monday July 10, 2023 @02:00PM (#36670362)

I’m a newbie, what’s a CDO?

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Re:Tuition costs have risen 710% since 1983 (1200% since 198... by HWR_14 on Monday July 10, 2023 @02:31PM (#36670905)

It's a combination of loans. The idea is let's say I have 100 identical loans I made (in reality, there are averages). Further, we agree 5-15% are likely to default. I'm going to get paid 85-95% of the interest + principle. But I want that money now. You want to invest in future cashflow, so I want to sell you a loan. Buying one from me is kinda risky, you may get back 100% or 0% of the interest + principle you expect. So instead I sell all 100 as a lump sum, and you and 99 other people each get 1%.

But, CDOs go a step further. You may have more or less risk tolerance. So we chop it up. You can buy something that gets paid back if 70% of the loans are good, or only if over 70% or over 80%, or even over 90%. The less likely you are to get paid back, the more you make.

So the person who absolutely wants to get paid back gets a small interest rate. The person who only gets paid back if literally every loan pays off gets a much higher rate.

In 2008, what happened is all those people buying the "very safe" 75-85% failure rate sections also were getting wiped out.

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Re:Tuition costs have risen 710% since 1983 (1200% since 198... by maxbond on Monday July 10, 2023 @02:03PM (#36670414)

Collateralized Debt Obligation, sort of like a bond that's composed from many loans on something you can repossess, like houses or boats. They're notorious because they were involved in the 2008 financial crisis.

https://www.investopedia.com/terms/c/cdo.asp

Or if you prefer the Big Short explanation:

https://youtube.com/watch?v=EEXTqtH-Oo4

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Re:Tuition costs have risen 710% since 1983 (1200% since 198... by adhesive_wombat on Monday July 10, 2023 @03:11PM (#36671443)

The Big Short also has an earlier explanation of a non-synthetic CDO ("we just repackage it [low-quality risky debt] along with a bunch of other shit that didn't sell and put it into a CDO"):

https://youtu.be/xbiDrzTd8fE?t=260s

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Re:Tuition costs have risen 710% since 1983 (1200% since 198... by arrosenberg on Monday July 10, 2023 @02:02PM (#36670394)

https://en.wikipedia.org/wiki/Collateralized_debt_obligation

You take a bunch of loans and bundle them together and securitize the bundle to sell to the public. Mortgage CDOs crashed the global economy in 2007-8.

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Re:Tuition costs have risen 710% since 1983 (1200% since 198... by missedthecue on Monday July 10, 2023 @04:41PM (#36672642)

Something everyone pretends to be an expert in because they saw the Big Short once.

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