THE DAILY CHART: Wall Street's CDO suicide

How Wall Street bankers managed to successfully market the arcane – and ultimately doomed – financial instruments known as collatoralised debt obligations (CDOs) during the US housing bubble remains one of the biggest questions in the aftermath of the 2008 financial crisis. But new analysis reveals that by 2007 these bundles of sub-prime mortgages, which have been roundly blamed for the financial misery from which the world is yet to recover, were being traded in a market where demand was being inflated by the banks themselves.

According to analysis by Pro Publica, a US-based not-for-profit investigative journalism organisation, Wall Street banks such as Merrill Lynch, Citigroup and UBS created a 'fake market' for CDOs by trading large portions of the riskiest mortgage bundles among themselves. This trading not only ensured bankers continued to receive commissions on these otherwise difficult-to-sell products – it also convinced unwitting institutional investors that CDOs were still highly sought-after. As Pro Publica points out, "the result was a daisy chain that solved one problem but created another: Each new CDO had its own risky pieces. Banks created yet other CDOs to buy those.” Once the US housing bubble crashed, this delicate daisy chain was broken – with devastating consequences.