Media no longer available
Toxie, Planet Money's pet toxic asset, died this week. She was killed by one of the worst housing busts in U.S. history.
Toxic assets — bundles of mortgages that Wall Street sliced up and sold to investors — were at the center of the financial crisis. When the housing market tanked, no one wanted to own them. That's when we bought one.
When we bought Toxie , in January of this year, she seemed like a great deal. We paid $1,000. That was 99 percent less than she cost dring the housing boom.
Every month, when homeowners paid their mortgages, we got a check. We thought we'd make back our investment before she died. But in the end, we collected only $449.
It was never really about the money, though. And now that Toxie's gone, we'd like to take a few moments to remember her, and hear from those she's touched.
The Early Years
Toxie and her ilk seemed so safe during the boom. Lots of investors jumped in. We met George Laufenberg, who bought one of Toxie's siblings for the New Jersey Carpenters' retirement fund.
"To be honest with you," he told us, "I thought we were pretty safe with most of the fixed assets we had, most of the bonds that we had."
Unlike us, the carpenters paid full price for their toxic asset. They've lost 95 percent of their investment.
During the boom, before Toxie was toxic, it seemed like she was helping everybody. People like George were able to buy what seemed like a safe investment. And their money flowed to people like Lisa Liberator-Kinney, who were able to buy houses.
Lisa bought a house in Florida in 2005, and her mortgage wound up in Toxie. She remembers those days as an exciting time.
"People were like, 'Yeah! I bought my house two years ago, and now it's tripled,'" she says. "You know? It's worth triple what it was worth."
Today, Lisa says her house in Florida has lost half its value. George and the carpenters are suing Toxie's creators. Toxie gave us wealth, then she took it all away.
Her Short Life With Us
We took Toxie home with us in January. At first things were going well. Homeowners were making payments and Toxie was sending us money every month. That only lasted for a few months. In April, our payment was zero dollars and zero cents. Toxie was in a coma.
We knew Toxie was toxic. We knew at some point she would get sick and die. But we always assumed the cause of death would be home foreclosures. That's not what happened.
We took Toxie to a doctor of sorts — Samir Noriega who used to work at JP Morgan. He looked at the data and pointed to his computer screen as if it were an x-ray. Toxie's coma, he told us, was brought on by loan workouts, by banks helping homeowners out.
These sorts of home loan modifications are generally good for all involved — good for the homeowner and for the lender on the other end.
But if you own a toxic asset on the edge of death, loan modifications can be bad for you. They mean less money coming in to the bond. This is one reason why fixing the foreclosure mess has been so complicated. Often, one person's gain is another's loss.
Standing at Toxie's grave, it's easy to feel a sense of closure. The problem with toxic assets, after all, was no one could figure out what they were worth.
People even worried some of the world's largest banks were insolvent because of the toxic assets they held. Now, with Toxie's death, we have an answer, at least for one toxic asset. Toxie was worth $449.06. Unfortunately, we paid $1,000.
On the other hand, Toxie is survived by countless other toxic assets, still sitting on the balance sheets of banks and pension funds around the world. The housing market is still unstable.
"We're in the third inning on the toxic asset business," says Wit Solberg of Mission Peak Capital, who helped us buy Toxie. "There's still a lot more that's sitting in people's balance sheets," he said. "Unfortunately the line is really long, like around the corner, up the steps."
Toxie is survived by millions investors and homeowners who are part of some other toxic asset's story. We still don't know how those stories will end.
The Toxie Song. Lyrics by Andrew Breton. Music and recording by James Gammon.
The Toxie Song was written by a Planet Money listener who grew attached to our toxic asset, and posted the song on our Facebook page.
Update: Thanks for all of the comments and questions. Here's a post that explains in a bit more depth what we mean when we say Toxie's dead.
Update 2: For more, listen to our podcast, Toxie, R.I.P.