Covered

ABS (Asset Backed Security). An ABS is simply a pool of financial products that have an associated cash flow i.e. mortgages, auto loans, credit cards, student loans, accounts receivable, etc These financial products are securitized by Wall Street ibanks and sold to investors in the form of Asset Backed Securities/Bonds . A MBS (Mortgage Back Security which can be CMBS or RMBS) is simply a subset of A BS. Thousands of mortgages are pooled together to form a single MBS. The princip al and interest payments from the homeowners flow into the MBS and are then paid out to investors. L2 dives pretty deep into MBS. A CDO (Collateralized Debt Obligation) is a SIV (Structured Investment Vehicle) and is a portfolio of ABS. CDOs are the financial products of doom we have been hearing so much about over the last 2 years with regard to the financial crisis. CDOs have seniority structures (tranches) that dictate which groups of investor s are paid first, second, etc last. CDOs have come under fire because the ratings agencies like S&P, Moody, etc would rate a particular CDO AAA while its entire po rtfolio of ABS was no higher than BBB. Their thinking was that MBS had relativel y low default correlations and would never go bad all at the same time. Not to b low your mind but Wall Street also invented the CDO^2, no joke, which is a CDO m ade up of CDOs made up of ABS. CDS (Credit Default Swap). Simply put a CDS is an insurance policy against the d efault of a particular debt. I would google this one if you want more info.