Broad Index Synthetic Trust Offering - BISTRO

The OG of the CDOs that led to TARP.

BISTROs were one of the first instruments to ever allow for the synthetic replication of risk associated with debt obligations (loans, bonds, etc.) in a way that allowed those risks to be pooled and traded among investors.

BISTROs were created in the late 1990s. The Fed, led by Alan Greenspan, agreed to let banks use regulatory capital for these offerings. They became so popular among investors that more, similar vehicles were introduced, and the market for them grew more than 10x over the ensuing decade (can you say “irrational exuberance?”), culminating with The Great Recession and near collapse of the U.S. banking system in 2007.

Thanks, Greeny!