Are hedge funds bailing out banks this week – or is it the other way around? And what are the private-equity firms doing? Buying hedge fund CDOs? OK. But who’s bailing out the private-equity firms when they need it? Lawyers? Hm. For those of you feeling like you’re watching a very bad ping-pong game, we have your primer on who’s doing what...These two seconds, anyway.

Collateralized debt obligations, the securities that contributed to $323 billion of bank writedowns, 65,000 job losses and the collapse of Bear Stearns Cos., may be staggering back to life.

Babson Capital Management LLC took over a $680 million CDO from Hartford Financial Services Group Inc. this month, adding to the $22 billion of the securities it oversees. Deutsche Asset Management replaced London-based Brevan Howard Asset Management LLP on a CDO in April. Blackstone Group LP, the largest buyout fund operator, sold three CDOs totaling $1.3 billion in April.

The combination of takeovers and new funds signals a new stage of the global credit crisis as CDO managers vie for more than $2 billion in annual fees generated by the market. One in five managers of the funds that pool bonds, loans and other assets face "financial stress" or ruin, according to Fitch Ratings.

"We absolutely believe the market will come back," said Matthew Natcharian, 39, managing director for structured products at Springfield, Massachusetts-based Babson, a unit of MassMutual Financial Group. "We're actively looking for opportunities," said Natcharian, whose firm also invests in private equity and emerging-market bonds.

In much the same way BlackRock Inc. Chief Executive Officer Laurence Fink stepped in at the Federal Reserve's request to manage $30 billion of hard-to-sell assets from Bear Stearns and agreed to take on $15 billion more for UBS AG, firms in the CDO market with the resources to sit out the credit crunch now find themselves in demand.

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