What ARE the Toxic Assets Everyone Is Talking About? → Washingtons Blog: Monday, March 23, 2009
What ARE the Toxic Assets Everyone Is Talking About?
Paul Krugman has already eviscerated Geithner's toxic asset plan in the New York Times (see this, this and this). So have Yves Smith, Mish and many others.
But very few are taking a step back and addressing a more basic question: what are the toxic assets that Geithner is throwing taxpayer money at?
The answer is that the toxic assets include:
Credit default swaps (CDS)
Collateral debt obligations (CDOs)
Mortgage backed securities
In fact, these different classes of toxic assets are related.
Some CDOs are bundles of subprime and other mortgages sold in "tranches" (when you use a fancy word which sounds French, people assume it must be good). The rating agencies like Moody's, S&P and Fitch's gave crazily high AAA ratings to many of the tranches on the assumption that real estate prices wouldn't fall nationwide.
What ARE the Toxic Assets Everyone Is Talking About?
Paul Krugman has already eviscerated Geithner's toxic asset plan in the New York Times (see this, this and this). So have Yves Smith, Mish and many others.
But very few are taking a step back and addressing a more basic question: what are the toxic assets that Geithner is throwing taxpayer money at?
The answer is that the toxic assets include:
Credit default swaps (CDS)
Collateral debt obligations (CDOs)
Mortgage backed securities
In fact, these different classes of toxic assets are related.
Some CDOs are bundles of subprime and other mortgages sold in "tranches" (when you use a fancy word which sounds French, people assume it must be good). The rating agencies like Moody's, S&P and Fitch's gave crazily high AAA ratings to many of the tranches on the assumption that real estate prices wouldn't fall nationwide.
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