CDO and Nonpositive Equity Questions
The speaker is too imprecise. Nobody wants to buy the equity tranche at a price that corresponds to its model valuation. If the tranche cannot be sold at that price, the bank structuring the CDO would take a loss. So they kept the equity tranche for themselves. Ideally, they would sell the equity tranche at model valuation, and eliminate their exposure to the deal (and just pocket the structuring fees for no long-term exposure risks).
It would be extremely unusual for someone to sell an equity of non-bankrupt firm at \$0, as the only conceivable motivation is to crystallize a loss for tax purposes. However, the equity can be made worthless in a bankruptcy restructuring, as the shares can be a claim on nothing. As such, the speaker in the video is speaking loosely.


There is no necessary relationship between the book value of a share and its market value. It is entirely possible that a firm has a negative book value for equity, yet a positive market price for its shares.