The bundled securities include prime, Alt-A, and subprime residential mortgage-backed securities1. In a CDO whose manager can swap assets, newer and weaker securities sometimes entered a pool of older ones2.

AIG Financial Products (AIGFP) sold CDS that protected against losses on the super senior layer of these CDOs, the layer that bears losses last. At the end of September 2008, the net notional amount was USD 72 billion3.

Notes

  1. Report of the Congressional Oversight Panel, p. 21 (PDF p. 29). The report lists the types of securities in the collateral pools of multi-sector CDOs. ↩

  2. Same report, p. 24 (PDF p. 32). The reference CDOs were not static, and managers' swaps let newer, weaker securities into older pools. ↩

  3. Same report, p. 24 (PDF p. 32). The net notional amount at the end of September 2008 was USD 72 billion. ↩