What percentage of CDO tranches were purchased by other CDOs in the years before the financial collapse? Did CDOs replace outside investors for key parts of CDOs?

At ProPublica’s request, the research firm Thetica Systems analyzed data on hundreds of asset-backed CDOs from the late 1990s through 2007. The firm looked at the collateral they contained as of Oct. 31, 2007.

CDOs mostly purchased mezzanine portions of other CDOs. To define mezzanine, we asked Thetica to exclude all non-rated CDO tranches and all CDO tranches rated Triple A. This way we could avoid including both the super-senior portion of CDOs and the equity.

Thetica also provided data on cross-ownership, examples where CDO A purchased a tranche of CDO B and vice versa. In addition, Thetica gave us data on the percentage of CDO tranches bought by a given CDO that came from CDOs underwritten by the same bank.

Here is a table and graphic showing the extent of that.

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