So What's A Toxic Asset?

(CBS)  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.

[truthseeker60]

Gee the bundled mortgage packages and Phantom (counterfeit) Stock sales weren't mentioned in this article. I guess we're all stupid and supposed to forget the little details we were told a few months ago.

[colt8881]

Question: So What's A Toxic Asset ?

Answer: George W. Bush and Dikkkk Cheney !

[VmikeV]

I find this hard to believe "Since the banks can't tell how large the black holes are on other banks' balance sheets?. We are in the electronic age! I think we all deserve further explanation? Mike

[iDragon13]

The only thing more toxic than a conservative Republican is....well, nevermind. There is nothing worse.

[koko98-2009]

As far as the Republicans are concerned you don't get more toxic than Vice President Cheney. He's about as nasty as you can get.

[jackp32]

It's those toxic liabilities that I am concerned about. They are extremely difficult, if not impossible, to get rid of. What are toxic liabilities? ...................... corrupt politicians, which includes most members of the U.S. Congress.

[onesword]

The American dream was destroyed by GREED. Some undeserving individuals were caught up in a dream to own their own home instead of renting. Then you have those people who tried to buy up as many homes as they could to turn an enormous profit. Houses that were maybe 25,000 in 2000 all of the sudden in a year or two was 75,000. Unbelievable. I'll keep renting. Everyone deserves this. The big bubble has burst.

[perceptions5]

So What's A Toxic Asset?

..............Not sure........

But I do know What's a Toxic Liability.................. The Democrat Party and their liberal pals in our MSM wolfpack press.................

[lloydbest1]

"What is a toxic asset?
It's when Barney Frank and Chris Dodd, through Fannie Mae and Freddie Mac, used regulations to force banks to give mortgages to high risk individuals who should never have gotten a mortgage in the first place." Posted by hawksprings at 8:03 AM : Mar 23, 2009

Yeah, it's part that. It is also part the conscientious homeowner that's 10 or fewer years from paying off a thirty year fixed rate mortgage and loses his home because (s)he's lost the job and, all of a sudden, can't make the payments. It is definitely part due to the leveraged debt and derivatives that major banks and financial houses such as Citibank, AIG, Lehman brothers and Wells Fargo snapped up like candy. It is also partially due to the inadaptability of some of our "Captains of Industry" who continue to insist on pursuing the same business models that may have once worked but haven't since the mid-nineties (the "Big Three" as a for instance).
All share the the onus. One can't pick out just one factor and hang the whole financial wreckage on that. It's not just the idiot who thinks he can buy a $300000 home on a $17000 per year salary any more than it is just the cloth-head who snaps up mortgages thinking the bubble will inflate forever; or solely the "evil CEO" (that can almost be considered one word, by the way) who thinks it is perfectly reasonable to insist on or accept a multimillion dollar bonus for posting a billion dollar quarterly loss.

[Chris_Butler]

What is a toxic asset?

Bad Management.
Bad Politicians.
Bad Federal Agencies.