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Definition of 'Toxic Assets'
An asset that becomes illiquid when its secondary market disappears. Toxic assets cannot be sold, as they are often guaranteed to lose money. The term "toxic asset" was coined in the financial crisis of 2008/09, in regards to mortgage-backed securities, collateralized debt obligations and credit default swaps, all of which could not be sold after they exposed their holders to massive losses.
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Investopedia explains 'Toxic Assets'
A toxic asset can be best described through an example:
If John Doe buys a house and takes out a $400,000 mortgage loan with a 5% interest rate through Bank A, the bank now holds an asset - a mortgage-backed security. Bank A is now entitled to sell the asset to another party (Bank B). Bank B, now the owner of an income-producing asset, is entitled to the 5% mortgage interest paid by John. As long as house prices go up and John continues to pay his mortgage, the asset is a good one.
If, however, John defaults on his mortgage, the owner of the mortgage (whether Bank A or Bank B) will no longer receive the payments to which it is entitled. Normally, the house would then be sold, but if the house price has declined in value, only a portion of the money can be regained. As a result, the securities based on this mortgage become unsellable, as no other party would pay for an asset that is guaranteed to lose money.
In this example, the mortgage-backed security becomes a toxic asset.
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Search results for 'Toxic Assets'
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http://www.investopedia.com/articles/economics/09/ppip-cleanup.asp
Should You Buy Banks' "Toxic" Assets? ... to be lost too. Toxic assets are called
"toxic" for a reason. Investing in this program involves ...
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http://stocks.investopedia.com/stock-analysis/2009/UBS-Sees-Light-At-The-End-Of-The-Tunnel-UBS0216.aspx
... In addition, UBS's write-downs include trading losses and charges related to sales
to the Swiss National Bank, which removed toxic assets from its books. ...
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http://stocks.investopedia.com/stock-analysis/2009/Nationalizing-Banks-Is-Not-The-Solution-BAC-C0224.aspx
... The so-called toxic assets would still be on the balance sheet of some
entity, whether it's the government or the private sector. ...
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http://stocks.investopedia.com/stock-analysis/2009/Is-Citi-Too-Big-To-Succeed-C-JPM-BAC-WFC-COF1023.aspx
... Citi Holdings And More Citi Holdings is a kind of bin that some parts of the once
ultra-mega-sized Citi, namely its toxic assets and soured derivatives, were ...
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http://www.investopedia.com/articles/fundamental-analysis/09/banking-stress-tests.asp
... (For an in-depth look, check out our Economic Indicators Tutorial.) Toxic
Assets The mechanics of the stress tests are as follows. ...
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http://www.investopedia.com/articles/economics/08/tarp-financial-system.asp
... The government wanted to get the toxic assets off the balance sheets of banks and
financial intermediaries to unclog the credit markets and restore liquidity. ...
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http://www.investopedia.com/articles/economics/10/understanding-the-fed-balance-sheet.asp
... During the height of financial crisis, the Fed's balance sheet ballooned
with toxic assets having different kinds of acronyms. The ...
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http://stocks.investopedia.com/stock-analysis/2011/Royal-Bank-Finds-Trading-Tough-RY-PNC-C-BACBMO-BNS-CM-TD0831.aspx
... On a worst-case base for Canadian banks, do investors really even imagine a potential
for the gross amount of toxic assets that would approach what both BAC ...
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http://financialedge.investopedia.com/financial-edge/1109/6-Economic-Gifts-I-Want-For-Christmas.aspx
... buy the bundled loans. They all seem like toxic assets, even thought the vast
majority are far from it. If this market beings functioning ...
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http://stocks.investopedia.com/stock-analysis/2010/Latin-American-Utilities-For-Growth-And-Income-IPU-CPL-CIG-EPL-SBS0511.aspx
... Combing strong international reserves, manageable debt and a financial system that
was not exposed to toxic assets or reliant on foreign funding to the extent ...
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