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CMO is the securitized Collateralized Mortgage Obligation.

CDO is the "insurance" issued against the CMO in case of default.

President Clinton in 2000 signed into law the ability for financial institutions to write this "insurance". They could not call it insurance or it would be regulated by insurance laws which governs the process including how much the insurer must have in excess of what they are insuring. The fact that it was not called insurance and the subsequent resistance of any regulation allowed institutions offering CDOs to operate without having any funds in reserves to cover a default by the underlying CMO.

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16y ago

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