The problem is not that simple: Everybody bought CDOs as hedge

CDOs in higher tranches were regarded as AAA rating as safe as US treasury bonds. Now because of serial defaulting, original credit rating of CDOs are no longer should be rated as AAA, they became defaulting as well. All the insurance companies, corporate investors, foreign investors who care nothing about real estate or mortgages are now being dragged into this mess. Their original safe hedge is now falling apart under their seats. Every body, even those remotely related to mortgage industry, like our mutual funds, are losing money. The good thing right now is that Chinese, Russian, English, French, South Americans and Indians are now sharing the loss together with us Americans. Thus, the loss may be less severe when it's spread out like that. CDO is in fact a risk transfer vehecle. What we don't know right now is how strong the world's risk tolerance level is. I hope it's strong.