Toxic assets

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The term toxic asset is a nontechnical term used to describe certain financial assets when their value has fallen significantly and when there is no longer a functioning market for these assets, so that they cannot reasonably be sold. This term became common during the financial crisis that began in August 2007. Toxic assets played a major role in that crisis. When the market for such assets ceases to function, it is described as "frozen".[1]

Toxic assets were originally called troubled assets. It took the financial crisis of 2008 to produce a more vivid term. That was when it became clear that some of the biggest U.S. financial institutions were sitting on a vast quantity of worthless assets. In fact, they were losing value at a pace that many had not thought was possible.[2]

Markets for some toxic assets froze in 2007, and the problem grew significantly worse in the second half of 2008. Several factors contributed to the freezing of toxic-asset markets. The value of the assets were very sensitive to economic conditions, and increased uncertainty in these conditions made it difficult to estimate the value of the assets. Banks and other, major financial-institutions were unwilling to sell the assets at significantly reduced prices, since lower prices would force them to significantly reduce their stated assets, making them appear insolvent.

References[change | change source]

  1. "What Are Toxic Assets?". Investopedia. Retrieved 2021-11-05.
  2. Rivera, Jose (2016-03-07). "Toxic Assets". LegalMatch Law Library. Retrieved 2021-11-05.