[sfnhltb]

I would have thought the idea that CDO sellers keeping the most vulnerable tranch protecting against cherry picking was a fairly obvious non-starter anyway. (The following will be massively oversimplified for easier explanation, but I think it still applies in the far more complicated real life equivalent)

If I make 10 CDOs and I think 5% of the underlying assets are bad, if I share them out equally the top tranch takes all the damage for each CDO - if the top tranch is 5% then I make nothing basically. If I make one CDO with 50% bad assets, and 9 with 100% good assets, then some of those losses go to other people deeper into the bad CDO tranch, suddenly 90% of my assets pay off instead of 0%.