NPR's Pet Toxic Asset, "Toxie," Dies

To see what would happen, reporters for NPR’s Planet Money pooled their money and bought a toxic asset for $1,000. At 99% off, it seemed like a bargain. This week, “Toxie,” as they dubbed their pet, gave up the ghost. Contrary to expectation, she was killed not by foreclosures, but by loan modifications, which reduced the amount of cash flowing into the bond. Planet Money tells the whole story in this awesome and hilarious animation.

Toxie’s Dead [NPR] (Thanks to Brett!)

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  1. vitajex says:

    I’m addicted to greed, but your assets are toxic…

  2. Mike says:

    Are we still bundling mortgages and selling them as securities? Hopefully no more sub-prime mortgages, but I have heard several stories implying that banks are heading back to their old way:

    http://www.bloomberg.com/news/2010-09-23/jpmorgan-to-sell-commercial-mortgage-backed-securities-update1-.html

    http://www.ft.com/cms/s/0/f82fb778-c7ef-11df-ae3a-00144feab49a.html

    I might be alone here, but I think the whole idea of mortgage-backed securities is a bad one. Only a matter of time before we see more tribbles, I mean toxies.

    • ARP says:

      Securitization of mortgages isn’t a bad thing in itself. It’s when you overleverage, try to sell them as high investment grade via purchase of insurance, keep the “off the books,” etc. that you lead to a problem.

      Of course, remember that to 50%+ of the population, the mortgate crises was caused by people buying too much house and Fannie and Freddie. Since the bank’s activities had nothing to do with the crisis (they were just innocent pawns), they should be able to keep doing it, no?

    • Posthaus says:

      Mortgage backed securities were at the heart of the financial crisis. It’s hard to explain, but NPR’s Planet Money has gone into detail in the past explaining them and their role in the financial meltdown.

      And yes, they are still putting mortgage-backed securities together, but far, far fewer of them and generally consisting of much much safer assets.

    • PsiCop says:

      In principle, securitizing mortgages is not necessarily bad. It’s a way to manage risk, and to finance mortgages. What was bad about how it had been done, was that low-risk mortgages with extremely high-risk ones. The theory was that the low-risk loans would temper the group. In practice it worked the opposite way … the high-risk loans poisoned the money-well.

      What they will have to do, now, is manage the risk better; i.e. don’t make any high-risk loans and keep the overall risk both low and homogeneous. My bet is that they will be disciplined about it and keep that up for a few years … but eventually they will open the dam again and resume blending risk.

      • Mike says:

        Sure, in theory mortgage backed securities are fine. BUT with the repeal of Glass-Steagall and the signing of Gramm-Leach-Bliley, and without the Volcker rule in the Financial reform bill, isn’t it just a matter of time before we have problems again?

  3. humphrmi says:

    So how did it die? Loan mods would reduce the income, but not eliminate it.

    • Coelacanth says:

      I laughed at the CUSIP on the headstone. Awesome feature!

    • wrjohnston91283 says:

      From what I can gather from the article, it looks like there are various investor classes in this security, and as the loans which back the security are modified (reducing the income), the lower classes stop getting payments, and become worthless. They were class B-6, which was pretty far back in line, and why they were able to get the asset at 99% off. My guess is class A-1 is still getting larger payments, and they will be the last to get cut if it comes to that, likewise, class A-1 probably isn’t selling at 99% off.

      • humphrmi says:

        Thanks. That actually explains a lot. I just watched the video, didn’t read the article (my bad.)

      • hansolo247 says:

        Yes, but at the time of initial sale, they were probably the same.

        The friends of the banker got A1, the others got the lower classes…but I bet you they all paid about the same!

  4. hansolo247 says:

    It seems likely this is a securitization of second mortgages or HELOCs.

    Those are utterly worthless.

  5. TinaBringMeTheAx says:

    Tokie looks awfully familiar.

    I think the Powerpuff Girls may have a trademark claim here.

    • parv says:

      There is minuscule similarity, like a weak parody, but not really.

    • Erika'sPowerMinute says:

      Speak ill of Planet Money and you shall taste my sword!

      (I love Planet Money. I want to marry Chana Joffe-Walt, even though I am A. already married and B. a girl.)

    • LastError says:

      It’s not that similar:
      Toxie is a creature. The Powerpuffs were little girls. Different.
      Toxie has a bow in its hair. So do a lot of girls, so that can’t be claimed as a Powerpuff trademark even if it’s similar.
      Toxie did not fly around like a super hero. Different.
      Toxie did not “talk” as such, so different.
      There is also a complete lack of any supporting elements (the professor, Mojojojo, etc)

      Pokemon might have more similarity.

  6. common_sense84 says:

    Completely made up. Considering how little mortgages get modified, there is very very little chance their’s got modified.

    • drjayphd says:

      Orrrrrrrrrr you could go to their site and see for yourself. They showed their work, I’m guessing you have no proof beyond sweeping generalities.

      • MMD says:

        Proof means nothing to those whose minds are already made up. This is why so many people “know” that Obama is a Muslim.

    • Verucalise (Est.February2008) says:

      Sounds like such a scientific answer, but as my Math teacher always said…

      Show me your work.

  7. Meathamper says:

    I’ll admit that’s the cutest toxic asset I’ve seen.

  8. RogueWarrior65 says:

    Anyone notice how their conclusion is that “toxie” caused the entire economy to collapse and an old guy with a dog is made out to be the bad guy when in reality if it hadn’t had a sub-prime mortgage it would be fine. The lesson here, boys and girls, is that the sub-prime loan is to blame and they only existed because some people decided to game the system which worked quite well for decades. That system said “If you can’t afford the payments, you don’t get a loan.” It’s pretty dead simple.

    • MMD says:

      Of course, the people who convinced those who couldn’t actually afford to pay the loans back to take them out anyway are completely blameless, right?

    • parkj238 says:

      Hmm lets see who’s more culpable, the experts whose job it was to lend to the subprime community and create toxic assets…or the laymen who were not paid to produce such loans and/or create whole new classes of risky assets.

    • Conformist138 says:

      Yeah, but the people who pushed these mortgages did everything they could to convince people it was ok, particularly young first-time homeowners or those who naively trust those who “know what they are doing” and assume that “This person wants to HELP me own a home, how AWESOME!”.

      I have a friend who was dead-set on buying a house despite not really having the income for it. She looked anyway and was told over and over about how to fudge documents and records to make her income look larger. I kept asking if that was wise because I was scared she would get in over her head and not be able to maintain the payments. She had a child on the way and thankfully people convinced her that making such a big decision at that time was not wise. Once she had her daughter, the housing crash was becoming big news and we finally had a name for all those offers- sub-prime mortgages. Best thing she ever did was listen to the friends around her warning that this sounded really risky and that her frame of mind wasn’t entirely rational with the hormones swirling and telling her to nest. Now, she rents a perfectly nice home that she can afford and is better off for it.

    • dush says:

      I remember being told by a mortgage broker guy about this great new loan type that was interest only. It was so “cheap” with such low payments and would let me buy more home for my money.
      It just seemed absolutely crazy to never pay down the actual debt.

      • SolidSquid says:

        afaik, the idea behind those kind of morgages is that they act as a temporary holding until you’re able to sell the house at a significant mark up. If house prices are booming, you can get one of those, pay the interest only for a year or two then sell the house with maybe 50,000 dollars profit depending on the value of the house (paying the morgage off with the rest of the money you get from the sale). You then invest that money in a slightly better house, take out the same morgage, etc until you get the house you actually want (bigger is always better of course!) and take out a regular type of morgage where you can pay it off, or the economy tanks and the price of houses stops rising, meaning you can’t sell the house to pay off the morgage as intended

  9. pj1280 says:

    Does anybody else find those Planet Money reporters (especially Alex Blumberg and Chana Joffe-Walt) just a little too smug, self-righteous, and condescending? Their massive oversimplification of complex financial/political/socioeconomic matters makes them sound like the junior high school Michael Moore Fan Club. I can’t help but reach for the dial when they come on. Or maybe it’s just me.