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Toxic assets

If you've been following the problems encountered by the banks, you've probably come across the phrase "toxic assets." They've poisoned banks' balance sheets and brought them to the brink of failure. But what is a toxic asset, exactly? Marketplace Senior Editor Paddy Hirsch explains.

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any chance you could do a money supply / central bank series with some focus on the multiplier effect - not necessarily limited to the Fed but especially central banks that can print money. good job overall

I was browsing around the website and realized that I never did get around to Paddy's video of "what makes a toxic asset toxic?". However, it seems that the video on this site has been mistakenly replaced with the "Public-Private Partnership" whiteboard video. I thought the Marketplace Staff might want to know. I look forward to seeing the Toxic Asset video when it's uploaded again!

Paddy's explanation of "What is a Toxic Asset" was marvelously done! Thanks Much.

Paddy,
Could you explain, from the point of the execution of a sub prime note and mortgage, through to the packaging and sale to the investors, who handles or owns this debt? Additionially, do you feel the Cummunity Reinvestment Act is the major culprit with the sub primes?

Thanks

Thanks for the considered comments by Sanoran and Paddy(you aren't from Ireland by any chance?). A phrase came to me the other day to explain some of the motivation behind the carelessness of all concerned, including Moody's, S&P, and the bank 'managers'--Insatiable Corruptibility.
And then there's Greenspan, not directly involved, but according to some of his statements in, "The Trillion Dollar Meltdown" he was just ad libbing from the start. He was in over his head I believe, as were all who turned a blind eye to the gathering storm. Recent history--from the last 2-3 decades--have shown repeatedly how the combination of some new 'investment vehicle' and deregulation have led to these very similar crises in the financial system.
Only this time the whole world gets to play! This makes Long Term Capital Management's fiasco seem tepid tea indeed. LTCM was misnamed, shoulda been Short Term Fraudulent Trading.

I second the question by Patrick Lim. If Toxic Assets are turning good money into bad, then what happened to the TARP? Where did our 700 billion dollars go?

As to the bankers due diligence... my question is about the Rating Agencies. I heard on the BBC, in early 2008 I think, that the agencies basically get payed by the companies they rate. Why did the bankers ever believe these agencies in the first place? Are the agencies not responsible too in some fashion?

Awesome Awesome Awesome - just like all your other videos! Thanks Mr. Hirsch!

Keep up the good work! Excellent resource to put things in simple terms!

It´s extremely helpful. I just discover it and love it!
Could you please explain how the stock market works. I am thinking specifically at how the clearing house works. I can easily imagine how the a food market works, but not when it comes to stocks.

Thx. Great videos explaining the mess in a digestable form. I'm glad it looks like you guys will be outlining the proposed govt solutions as well. Would be nice to see why some ideas out there are "bad" too. For example, why is it a bad idea if the govt stepped in and helped carry the bad mortgages for a couple of years instead of feeding trillions to banks, etc.

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