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How to Break a CPDO

CPDOs, or Constant Proportion Debt Obligations, were briefly popular at the end of 2006 as a way of getting high returns on AAA-rated paper. At the time, many commentators (notably excluding myself) said that CPDOs were too good to be true, and that the ratings agencies who gave them a AAA rating were, in a word, wrong. Those commentators are feeling a bit smug right now, since CPDOs look very much as though they are getting close to breaking point.

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