In 2008, CDOs were the news of the day hitting a peak of $800 billion. Collateralized Debt Obligations are derivatives based on cash flow generating assets that are turned into investment products. These CDOs were mostly mortgage based in 2008 and went sour when housing prices and mortgage prices declined.
When mortgages declined, first the BBB-rated tranche declined and then it wiped out the AAA-rated tranche with it.
Let's fast forward to today. We do not have a lot of mortgage-backed CDOs anymore, but we have transitioned to CLOs. CLOs are backed by corporate credit