So What's A Toxic Asset?

The Obama administration rolled out a plan Monday that could facilitate the purchase of up to $1 trillion worth of toxic assets from struggling banks in an effort to clean up their balance sheets and get them to start lending again.

So what exactly are these toxic assets, which have caused such huge problems in our financial system?

Every time you see foreclosure signs littering neighborhoods, you're probably looking at the makings of a toxic asset, reports CBS News correspondent Bianca Solorzano.

"Toxic assets are the ones that nobody wants to touch because they're just considered too dangerous," Doug Rediker, of New America Foundation, told CBS News.

Normally banks can sell their healthy assets, such as a borrower's timely paid mortgage, to other banks. This allows Bank A to get money quickly and Bank B to profit from the interest that the homeowner is paying.

But if you go into foreclosure and the price of your home drops below the value of the loan itself, then that asset, namely the mortgage, is losing money. It becomes toxic and sits on the banks' balance sheets like a black hole.

Since the banks can't tell how large the black holes are on other banks' balance sheets, they have no confidence to lend money to each other and they stop making new loans, clogging up the nation's financial system.

And although the Treasury Department's plan makes allowances for up to $1 trillion worth of these toxic assets, some economists think the toxic clog could be more than twice that size.

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