Profile of Merrill Lynch’s CDO team from May 2005 [emphasis mine]:

“Is there a danger that the market is so opaque that even those who invest in it are taking bigger risks than they should? Nomura’s Whetten says some investors who have entered the market recently might be getting in over their heads. ‘The people who jump into the market last tend to be the ones with the least knowledge,’ she says. ‘People who invested and got hit in 2001 and 2002 said, ‘we just didn’t know what we were buying.’ It’s possible that something on a smaller scale [ed. or a much larger scale] could happen because everyone is buying CDOs with a me-too attitude.’ She adds that many investors with little understanding of structured finance have simply, and dangerously, applied their knowledge of corporate bonds to asset-backed securities … For now, it seems, investors are more interested in returns than transparency or simplicity.”

Investors desperate for yield, blinded by greed, lazy, imprudent, irresponsible… the usual mix. I don’t blame these guys who issued the stuff. Caveat emptor!

Let me remind you what Vanguard’s position was [emphasis mine]:

“Vanguard Group Inc., the second-largest mutual fund company in the U.S., has a policy of never buying CDO commercial paper for its $90 billion in money market funds or $325 billion in fixed-income mutual funds.

‘It really gets down to transparency questions,’ says John Hollyer, risk management director at Valley Forge, Pennsylvania-based Vanguard. ‘Can you understand what you have? And can you measure it appropriately? We haven’t been comfortable that we could.’”

via s_m_i (Twitter)