By Chana Joffe-Walt and David Kestenbaum
Toxic assets — home mortgages packaged into complicated bonds that no one wanted to touch when the housing bubble collapsed — are starting to trade again.
Planet Money wanted to figure out how this chapter of financial history will end.
So we decided to buy a toxic asset of our own.
How We Found Our Toxic Asset
There's no store where you can buy toxic assets; you have to know a guy. We know Wit Solberg, a former Wall Street trader.
Solberg left Wall Street to set up his own shop, Mission Peak Capital, in Kansas City, Mo. He and a dozen guys sit at desks with their tools: monitors, potato chips, Snapple, chewing tobacco. Pretty much all day long, Solberg looks at those monitors and evaluates toxic assets.
"The big black Angus cow that everybody wants? We're not buying that cow because it's too expensive," he says. "We want the cow that's got a wounded leg, but she might produce a few more calves for us — and [she's] cheap."
Finally, we find a beautiful, totally toxic asset at what Solberg thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing. We buy a piece from Solberg for $1,000. It's going to be our encyclopedia of the financial crisis.
What Our Toxic Asset Looks Like
Our toxic asset has 2,000 mortgages, many of them in hard-hit states like California, Arizona and Florida. A lot of the people in our bond are really struggling. Almost half are behind on their mortgage payments, and 15 percent of the homes are already in foreclosure.
At some point those homes will be taken over and sold for a loss. Every time that happens, the bond shrinks. Eventually, our part of the bond will disappear entirely.
Until then, we get a little money every month from people paying off their mortgages. We just got a check for $141. If it goes to Thanksgiving, we could double our money. …
Tracking Our Toxic Asset
Thursday, March 11, 2010
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