If it will never happen again then October 26 and 29 of 2007 will be recorded in history books like the Biggest Bloody Butchery (BBB) of collaterized debt obligations.

In two days, the AAA-rated credit default swaps protecting the papers linked to non-agency mortgage tranches declined by about 10%. This usually means that corresponding paper loss across the board was roughly the same.

The total outstanding amount of those CDOs is about 1.5-1.6 trillion, where the AAA slice is about 80%, or 1.2 trillion dollars.

The wipe-out of 10% is probably translating into $100-$120 billion in just two days, and papers with that rating are usually sitting in highly leveraged SIVs and various “low-risk” funds. This is not the same as the stock market losses of $100 billion, which happens pretty often. The stock losses are usually spread over millions of accounts where everyone lost few bucks. The CDO losses will hit just couple of involved institutions, few $billions each.

Like I’ve said before, there is a lot of dead fish deep in the waters, just give it a week before everybody will feel that smell…