Lots of readers and listeners wrote this morning to ask what we mean when we say that Toxie, our toxic asset, is dead.
Here's a quick explanation.
Toxie was a small piece of a big mortgage bond. When that bond was created in 2005, it had $2.4 billion worth of mortgages in it. When homeowners make their monthly mortgage payments, their money goes in to a big pot. The money in that pot gets dispensed to the investors who own pieces or bond.
But the money doesn't get divided up evenly. The investors who own the bond are arranged in line to get paid.
Those at the front of the line get paid first. They have the safest investment. The people at the back of the line get paid last. They have the riskiest investment.
We had a spot very close to the back of the line.
That's how it's possible for half the homeowners in the bond to be making payments, and for Toxie to die. The investors in front of us in line are still getting money.
In the end there was no death certificate. Just a financial statement indicating that the principal balance for the B-6 class had gone to zero. B-6 was basically our place in line. Now the B-5 investors are next on the chopping block.