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Collateralized Debt Obligations (CDOs): CNBC Explains

Thursday, 25 Aug 2011 | 6:00 AM ET

Among the derivative securities at the epicenter of the financial crisis, one of the major culprits blamed for financial chaos were collateralized debt obligations, or CDOs. Like any derivative, the value of a CDO is based on an underlying asset, but in this case it is a mortgage-backed security, which is another derivative. How are these CDOs constructed and why would people buy them? Salman Khan of the Khan Academy explains.