182:(FDIC) will provide non-recourse loan guarantees for up to 85 percent of the purchase price of legacy loans. Private sector asset managers and the U.S. Treasury will provide the remaining assets. The second program is called the legacy securities program, which will buy mortgage backed securities (RMBS) that were originally rated AAA and commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) which are rated AAA. The funds will come in many instances in equal parts from the U.S. Treasury's
47:
economic conditions, and increased uncertainty in these conditions made it difficult to estimate the value of the assets. Banks and other major financial institutions were unwilling to sell the assets at significantly reduced prices, since lower prices would force them to reduce significantly their stated assets, making them, at least on paper, insolvent.
178:(PPIP) to buy toxic assets from banks. The major stock market indexes in the United States rallied on the day of the announcement, rising by over six percent with the shares of bank stocks leading the way. PPIP has two primary programs. The Legacy Loans Program will attempt to buy residential loans from bank's balance sheets. The
259:...tructured finance gave banks and others more chances to take on “tail risk”. This is an insurance-like trading strategy: one institution writes swaps or options that provide it with regular payments in exchange for taking another’s risk of default. In most cases, this produces profits, but occasionally it is disastrous.
194:
has been very critical of this program, arguing that the non-recourse loans lead to a hidden subsidy that will be split by asset managers, bank shareholders, and creditors. Banking analyst
Meridith Whitney argues that banks will not sell bad assets at fair market values because they are reluctant to
142:
Furthermore, banks and other large financial institutions were reluctant to accept lower prices for these assets, since lower prices would force them to recalculate the total value of their assets, and, if the loss was sufficiently large, force them to declare a negative total value. Several banks in
46:
When the market for toxic assets ceases to function, it is described as "frozen". Markets for some toxic assets froze in 2007, and the problem grew much worse in the second half of 2008. Several factors contributed to the freezing of toxic asset markets. The value of the assets was very sensitive to
38:
that has fallen in value significantly and for which there is no longer a functioning market. Such assets cannot be sold at a price satisfactory to the holder. Because assets are offset against liabilities and frequently leveraged, this decline in price may be quite dangerous to the holder. The term
268:
The net value of the expected cash flows is calculable by reference to a model, but the calculations require a degree of confidence in the probabilities of the named event occurring which may be unwarranted. "There is no doubt there could be disagreement on what the fair value for these securities
153:
was introduced to describe banks, which would have become bankrupt if their assets had been revalued at realistic levels. Toxic assets, by increasing the variance of banks' assets, can turn otherwise healthy institutions into zombies. Potentially solvent banks will make too few good loans. This is
161:
Further, insolvent banks with toxic assets are unwilling to accept significant reductions in the price of the toxic assets, but potential buyers were unwilling to pay prices anywhere near the loan's face value. With potential sellers and buyers unable to agree on prices, the markets froze with no
123:
One can explain this alternately as the price not adjusting down—the price is too high, with supply being too high, or alternatively demand being too low, or by the theory of an equilibrium price not holding—the price at which sellers will sell is higher than the price at which buyers will buy.
138:
When it became clear that such conditions would not continue, it was no longer clear how much revenue the assets were likely to generate and, hence, how much the assets were worth. Since the assets were typically very sensitive to economic conditions, even relatively small uncertainties in the
264:
The right to receive a stream of payments is accounted for as an asset. The obligation to make a payment is accounted for as a liability. In the case of a credit default swap, the number and amount of payments in and out is subject to an undetermined risk.
135:. The value of these assets was very sensitive to economic factors, such as housing prices, default rates, and financial-market liquidity. Prior to the crisis, the value of these assets had been estimated, using the prevailing economic data.
342:
253:
that entitles the holder to a regular stream of small payments but obliges the holder to make a large payment if a specified event occurs. John Gapper describes one such instrument, a "tail risk" swap:
206:
However, that argument ignores the possibility of simultaneously adjusting bank liabilities by legislation or regulation, as requested in the
September, 2009, $ 24 billion plan proposed by FDIC chair
143:
the autumn of 2008 were forced to accept buy-outs or mergers because it was believed that they were in this situation. This re-evaluation of total assets based on prevailing market prices is known as
214:
Because the number of commercial bankruptcy filings continues to increase, there is evidence for negative feedback pressure indicating that toxic assets still need to be addressed.
222:
An example of a market which froze is the
Canadian ABCP ("asset-backed credit paper") market. The term "toxic asset" is generally associated with financial instruments like CDOs ("
158:
problem. Alternatively, potentially insolvent banks with toxic assets will seek out very risky speculative loans to shift risk onto their depositors and other creditors.
139:
economic conditions could lead to large uncertainties in the value of the assets, which made it difficult for buyers and sellers in the market to agree on prices.
82:"In all my years in the business I have never seen a more toxic product . It's not only subordinated to the first, but the first is subprime. In addition, the
211:
120:
This has not happened for many types of financial assets during the financial crisis that began in 2007, hence one speaks of "the market breaking down".
113:
posit that market clearing happens by the price adjusting—upwards if demand exceeds supply and downwards if supply exceeds demand. Therefore, it reaches
86:
are below 600, below 500 and some below 400 With real estate values coming down ... the product will become increasingly worse." (April 17, 2006)
127:
Prior to the crisis, banks and other financial institutions had invested significant amounts of money in complicated financial assets, such as
752:
495:
179:
175:
190:(TALF). The initial size of the Public Private Investment Partnership is projected to be $ 500 billion. Economist and Nobel Prize winner
117:
at a price that both buyers and sellers will accept, and, in the absence of outside interference (in a free market), this will happen.
40:
195:
take asset write downs. Removing toxic assets would also reduce the upward volatility of banks' stock prices. Because stock is a
292:
223:
128:
70:, who used the term "toxic" to describe certain mortgage products in emails in spring of 2006, as revealed in SEC filings:
203:
will hurt the stock price of distressed banks. Therefore, such banks will only sell toxic assets at above market prices.
183:
316:
230:"), and the subprime mortgage market—particularly the lower tranches—but the term does not have a precise definition.
631:
553:
187:
742:
287:
242:
645:
614:
297:
110:
528:
588:
442:
402:
67:
245:
to financial instruments which cannot be readily identified as an asset or a liability. According to
470:
227:
210:, which would have shielded shareholders but could have led to non-astronomical management bonuses.
200:
114:
62:
The term was in limited use at least as early as 2006, and may have been coined by or popularized by
250:
132:
106:
706:
688:
670:
502:
74:" the most dangerous product in existence and there can be nothing more toxic..." (March 28, 2006)
580:
576:
434:
430:
394:
390:
347:
96:
363:
171:
429:"Common (Stock) Sense about Risk-Shifting and Bank Bailouts". SSRN.com. December 29, 2009.
601:
455:
415:
282:
100:
35:
575:
Linus Wilson (February 14, 2009). "The Put
Problem with Buying Toxic Assets". SSRN.com.
747:
368:
144:
726:
736:
270:
155:
63:
246:
191:
162:
transactions occurring. In some cases, markets remained frozen for several months.
249:, "the toxic securities in question are not homogeneous". One example would be a
99:
of a good equal each other, so buyers and sellers are matched, one says that the "
207:
196:
149:
226:", assets generated from the resale of portions of a bank's mortgages), CDS ("
83:
17:
186:(TARP) monies, private investors, and from loans from the Federal Reserve's
649:
389:"Debt Overhang and Bank Bailouts". SSRN.com. February 2, 2009.
729:(5 November 2010), episode 418, retrieved 13 February 2011.
471:"U.S. Expands Plan to Buy Banks' Troubled Assets"
469:Andrews, Edmund L.; Dash, Eric (March 24, 2009).
241:is the name applied during the aftermath of the
689:"King's men must put themselves together again"
554:"Meredith Whitney: A Bad Bank Won't Save Banks"
501:. U.S. Treasury. March 23, 2009. Archived from
496:"FACT SHEET PUBLIC-PRIVATE INVESTMENT PROGRAM"
78:Regarding Countrywide's subprime 80/20 loans:
50:Toxic assets are also euphemistically labeled
43:, in which toxic assets played a major role.
8:
343:"Mozilo knew hazardous waste when he saw it"
170:On March 23, 2009, U.S. Treasury Secretary
27:Assets with no value or available markets
556:. businessinsider.com. January 29, 2009
308:
269:is,” said Lawrence Levine, director at
597:
586:
451:
440:
411:
400:
180:Federal Deposit Insurance Corporation
176:Public-Private Investment Partnership
7:
707:"Plan could be complex to executes"
615:"FDIC chief in tune with Democrats"
362:Krugman, Paul (February 23, 2009).
212:Bair's plan was never implemented.
25:
671:"Recapitalise the banking system"
646:"Canadian ABCP restructuring FAQ"
632:"Business Bankruptcies Revisited"
630:John Tozzi (October 26, 2009).
527:Paul Krugman (March 23, 2009).
224:collateralized debt obligations
129:collateralized debt obligations
293:Troubled assets relief program
199:on a firm's assets, this lost
1:
364:"All the President's zombies"
184:Troubled Asset Relief Program
41:financial crisis of 2007–2008
753:United States housing bubble
166:Geithner attempt at bail-out
188:Term Asset Lending Facility
769:
529:"Geithner plan arithmetic"
727:This American Life: Toxie
39:became common during the
288:Subprime mortgage crisis
596:Cite journal requires
450:Cite journal requires
410:Cite journal requires
323:. investinganswers.com
298:Home equity protection
262:
111:neoclassical economics
256:
68:Countrywide Financial
228:credit default swaps
133:credit default swaps
251:credit default swap
107:Classical economics
617:November 18, 2008
147:pricing. The term
652:. August 18, 2008
619:Los Angeles Times
508:on March 24, 2009
348:Los Angeles Times
321:Investing Answers
243:subprime meltdown
97:supply and demand
16:(Redirected from
760:
715:
714:
703:
697:
696:
685:
679:
678:
667:
661:
660:
658:
657:
642:
636:
635:
627:
621:
612:
606:
605:
599:
594:
592:
584:
572:
566:
565:
563:
561:
550:
544:
543:
541:
539:
524:
518:
517:
515:
513:
507:
500:
492:
486:
485:
483:
481:
466:
460:
459:
453:
448:
446:
438:
426:
420:
419:
413:
408:
406:
398:
386:
380:
379:
377:
376:
359:
353:
352:
339:
333:
332:
330:
328:
313:
172:Timothy Geithner
21:
768:
767:
763:
762:
761:
759:
758:
757:
743:2006 neologisms
733:
732:
723:
718:
705:
704:
700:
687:
686:
682:
669:
668:
664:
655:
653:
644:
643:
639:
634:. BusinessWeek.
629:
628:
624:
613:
609:
595:
585:
574:
573:
569:
559:
557:
552:
551:
547:
537:
535:
526:
525:
521:
511:
509:
505:
498:
494:
493:
489:
479:
477:
468:
467:
463:
449:
439:
428:
427:
423:
409:
399:
388:
387:
383:
374:
372:
361:
360:
356:
341:
340:
336:
326:
324:
315:
314:
310:
306:
283:High-yield debt
279:
236:
220:
218:Types of assets
168:
93:
60:
52:troubled assets
36:financial asset
28:
23:
22:
15:
12:
11:
5:
766:
764:
756:
755:
750:
745:
735:
734:
731:
730:
722:
721:External links
719:
717:
716:
698:
680:
662:
637:
622:
607:
598:|journal=
567:
545:
533:New York Times
519:
487:
475:New York Times
461:
452:|journal=
421:
412:|journal=
381:
369:New York Times
354:
334:
317:"Toxic Assets"
307:
305:
302:
301:
300:
295:
290:
285:
278:
275:
239:Toxic security
235:
232:
219:
216:
167:
164:
145:mark-to-market
92:
89:
88:
87:
76:
75:
59:
56:
26:
24:
18:Toxic security
14:
13:
10:
9:
6:
4:
3:
2:
765:
754:
751:
749:
746:
744:
741:
740:
738:
728:
725:
724:
720:
712:
708:
702:
699:
694:
690:
684:
681:
676:
672:
666:
663:
651:
647:
641:
638:
633:
626:
623:
620:
616:
611:
608:
603:
590:
582:
578:
571:
568:
555:
549:
546:
534:
530:
523:
520:
504:
497:
491:
488:
476:
472:
465:
462:
457:
444:
436:
432:
425:
422:
417:
404:
396:
392:
385:
382:
371:
370:
365:
358:
355:
351:. 2009-06-04.
350:
349:
344:
338:
335:
322:
318:
312:
309:
303:
299:
296:
294:
291:
289:
286:
284:
281:
280:
276:
274:
272:
271:RSM McGladrey
266:
261:
260:
255:
252:
248:
244:
240:
234:Related terms
233:
231:
229:
225:
217:
215:
213:
209:
204:
202:
198:
193:
189:
185:
181:
177:
173:
165:
163:
159:
157:
156:debt overhang
152:
151:
146:
140:
136:
134:
130:
125:
121:
118:
116:
112:
108:
104:
102:
101:market clears
98:
91:Market freeze
90:
85:
81:
80:
79:
73:
72:
71:
69:
66:, founder of
65:
64:Angelo Mozilo
57:
55:
53:
48:
44:
42:
37:
33:
19:
710:
701:
692:
683:
674:
665:
654:. Retrieved
640:
625:
618:
610:
589:cite journal
570:
558:. Retrieved
548:
536:. Retrieved
532:
522:
510:. Retrieved
503:the original
490:
480:February 12,
478:. Retrieved
474:
464:
443:cite journal
424:
403:cite journal
384:
373:. Retrieved
367:
357:
346:
337:
325:. Retrieved
320:
311:
267:
263:
258:
257:
247:George Soros
238:
237:
221:
205:
192:Paul Krugman
174:announced a
169:
160:
148:
141:
137:
126:
122:
119:
105:
94:
77:
61:
51:
49:
45:
31:
29:
208:Sheila Bair
197:call option
150:zombie bank
115:equilibrium
32:toxic asset
737:Categories
656:2009-03-22
375:2009-03-22
327:7 December
304:References
201:volatility
560:March 27,
538:March 27,
512:March 26,
95:When the
650:CBC News
277:See also
581:1343625
435:1321666
395:1336288
711:FT.com
693:FT.com
675:FT.com
579:
433:
393:
58:Origin
748:Asset
506:(PDF)
499:(PDF)
84:FICOs
34:is a
602:help
577:SSRN
562:2009
540:2009
514:2009
482:2009
456:help
431:SSRN
416:help
391:SSRN
329:2017
154:the
131:and
109:and
103:".
739::
709:.
691:.
673:.
648:.
593::
591:}}
587:{{
531:.
473:.
447::
445:}}
441:{{
407::
405:}}
401:{{
366:.
345:.
319:.
273:.
54:.
30:A
713:.
695:.
677:.
659:.
604:)
600:(
583:.
564:.
542:.
516:.
484:.
458:)
454:(
437:.
418:)
414:(
397:.
378:.
331:.
20:)
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.