What are "toxic assets"?
I read an article that says the government plans to bail out financial institutions by buying their "toxic assets." What are toxic assets, in laymans terms?
- 1 decade agoFavorite Answer
Let's say that Bob had a loan with Mellon Bank. The Loan is for $200,000 for a house and Bob pays 6% interest. The house is collateral, meaning Mellon gets the house if Bob defaults. But this house was valued at $275,000, so what is the worry?
So now Mellon Bank has "mortgage paper", which is an asset. They can sell the mortgage to anyone they wish. Bob will then be required to pay the purchaser, who will get the benefit of the 6% interest. It's an investment which may (or may not) make more money in the future. A good idea if Mellon needs money immediately.
But ol' Bob doesn't have the money to pay this mortgage. At the same time, the house value has greatly reduced to $150,000. Bob still owes $199,000.
If Bob defaults on this, Mellon will only be able to recover a portion of their money back. The mortgage paper has now become illiquid (the house can't pay the mortgage). Mellon is now unable to sell it. Why would somebody pay for an asset that guarantees you will lose money?
That mortgage has become a "toxic asset".Source(s): Accountant Passed CPA Exam
- Anonymous4 years ago
This Site Might Help You.
What are "toxic assets"?
I read an article that says the government plans to bail out financial institutions by buying their "toxic assets." What are toxic assets, in laymans terms?Source(s): toxic assets: https://biturl.im/Wh9f1
- ZinaLv 44 years ago
For the best answers, search on this site https://shorturl.im/avErx
No, give it to the board of directors, its a publicly traded company. All the major decisions of AIG have gone through them not the executives. The executives just do their job and as the board dictates. Or have our congressman buy them with their own money since it was their decisions back in the 90's that set this all in motion,it was them who left in the stipulations for the bonuses, and they feel that they can go over the constitution and pass new tax laws that look remarkably like socialism.
- How do you think about the answers? You can sign in to vote the answer.
- Ask&Answer2009Lv 61 decade ago
It's all these subprime mortgages and bad mortgages. They are practically worthless cause people cant pay them back. The banks lended money to people who couldn't pay them back. Now these crappy mortgages are all packaged up and Wall St. sold them to different places, and this was done behind closed doors.
- DARLv 71 decade ago
An asset (like a bad loan) so bad there is no market for it.
Cash for trash, in other words.
- suezLv 61 decade ago
Bad mortgages and bad stocks
- Anonymous1 decade ago