In June 2006, a year before the subprime mortgage market collapsed, Morgan Stanley created a cluster of investments doomed to fail even if default rates stayed low — then bet against its concoction. Known as the Baldwin deals, the $167m of synthetic collateralized debt obligations (CDOs) had an unusual feature, according to sales documents. Rather than curtailing their bets on mortgage bonds as the underlying home loans paid down, the CDOs kept wagering as if the risk hadn’t changed. That left Baldwin investors facing losses on a modest rise in US housing foreclosures, while Morgan Stanley was positioned to gain.
1 minute readMorgan Stanley’s doomed Baldwin CDOs thwarted “natural process”
May 14, 2010, 2:19pm
About Diana Golobay
Diana Golobay was a reporter with HousingWire through mid-2010, providing wide-ranging coverage of the U.S. financial crisis. She has since moved onto other roles as a writer and editor.see full bio
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About Diana Golobay
Diana Golobay was a reporter with HousingWire through mid-2010, providing wide-ranging coverage of the U.S. financial crisis. She has since moved onto other roles as a writer and editor.see full bio