Toxic assets

An asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). that becomes illiquid when its secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded. 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 Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral. -backed securities, collateralized debt obligations CDO
Collateralized Debt Obligations The term CDO covers multiple means of structuring paper products for financial assets. These include bonds, loans and sometimes non-listed shares. Such derivatives enable banks to render normally non liquid debts liquid, thus increasing the tradability of the asset. From the buyer’s point of view, CDO are also supposed to reduce risk by diluting it, since there is less chance of default on a bouquet of credits than on one single credit. In reality, the absence of clear information about the composition of CDO and the fact that they are often combined with high risk assets make them a very risky product. and credit default swaps CDS
Credit Default Swaps Credit Default Swaps are an insurance that a financial company may purchase to protect itself against non payments. , all of which could not be sold after they exposed their holders to massive losses.

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org