Toxic Assets Market Awaits Rebound During the peak of the housing market, the value of the mortgages that got stuffed into those complicated mortgage bonds known as toxic assets was more than $3 trillion. But now the market has stalled, in part because many sellers are waiting for the economy to improve.
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Toxic Assets Market Awaits Rebound

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Toxic Assets Market Awaits Rebound

Toxic Assets Market Awaits Rebound

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This is MORNING EDITION from NPR News. I'm Renee Montagne.


And I'm Linda Wertheimer, sitting in for Steve Inskeep, who's on a reporting trip to Pakistan. Last week, we brought you a story about how our Planet Money�team had�pooled together $1,000 of their own money and made a rather dubious investment. They bought a toxic asset� one of those complicated mortgage bonds that was at the heart of the financial crisis. Those bonds no one wanted to buy.

So now we're able to trace at least one toxic asset. But where are all the others? David Kestenbaum, with or Planet Money team, joins me.

David, how many toxic assets are there out there?

DAVID KESTENBAUM: You can sort of add things up. The total value of mortgages that got stuffed into these bonds during the peak of the housing market - that total is over $3 trillion. So, at least half of that is stuff that I think you could safely call toxic. So there's still an enormous amount of toxic out there - in some cases, clogging up the system.

WERTHEIMER: Aside from you, who are the people who are buying these things?

KESTENBAUM: There are other people out there. We just don't really have a good idea who they are. When we were trying to find one to bid on, we were sitting at a table with this former Wall Street guy, Wit Solberg. He was helping us figure to what one to buy. And he was going through pages and pages and pages of complicated documentation for one of these bonds. And I imagined maybe like we were up against an army of other smart people who would be bidding. So I asked him.

In your head, how many people do you imaging are out there trying to value this thing, right now, to bid?

Mr. WIT SOLBERG (Former Wall Street trader): This particular one? Probably not so many. That's why I'm kind of amused by it.

KESTENBAUM: Does that mean 10 or 100, or what?

Mr. SOLBERG: Two, three.


Now, Linda, we were looking at a really toxic asset. The one we bought had basically lost 99 percent of its value. And they're not all that bad. If you talk to brokers they'll tell you that maybe something like $500 million of this stuff trades every day. But that is still a very small fraction of the total amount of toxic assets out there.

WERTHEIMER: So where are the rest of these things? Are they lining bird cages? I mean, who's holding onto them?

KESTENBAUM: I mean, it could pension funds, could be insurance companies. They have money sitting around. They have to invest in something. Or banks and they're probably holding on because there still isn't a great market for these things and their hope is that, you know, the value will rebound a bit if they wait long enough.

That is probably one reason banks are not lending as much as they might right now. They've got these questionable things on their books and it's unclear what a lot of them are worth.

WERTHEIMER: The government originally planned to buy up toxic assets and try to get banks unstuck and get the market going again. What happened with that?

KESTENBAUM: Right. That was the core of the TARP plan in 2008. Actually, remember it stood for Troubled Asset Relief Program. And it was supposed to buy up maybe $700 billion of toxic assets. The government gave up on that. But there is a smaller government program, now in place, buying toxic assets.

The Treasury Department has teamed up with private investors. And they're hoping to buy $40 billion of this stuff to try and get the market going again.

I actually went to a toxic asset conferences for people who are interested in buying these things, and I ran into Craig Schiffer - he's with Sevara Partners - he was one of the speakers. And his company sometimes evaluates toxic assets. So I showed him ours and asked him what he thought.

Mr. CRAIG SCHIFFER (Sevara Partners): It's a private label MBS?


Mr. SCHIFFER: Private labeled mortgage backed security.


Mr. SCHIFFER: And you bought this personally?

KESTENBAUM: Well, we...

Mr. SCHIFFER: You're a brave man. It's not a very good loan portfolio, man. You've got - 41 percent are either dead or soon to be dead. I'm trying to find that sheet.

WERTHEIMER: David, I guess he's talking about - this is one of those sliced and diced mortgages. And 41 percent of the mortgages you have slices of are dead or about to be dead. He didn't seem to think very highly of your investment acumen. How's it going?

KESTENBAUM: Well, actually we will know a little more today, because we're supposed to get a payment. The way it works is that there are over 2,000 home mortgages in our bond all over the country. And every month if people make their mortgage payments and too many houses don't get liquidated, we get a little bit of money.

And we spent $1,000. And so far, we've gotten back a total of $332.

WERTHEIMER: Thanks, David.

KESTENBAUM: Thank you.

WERTHEIMER: You can follow Planet Money's toxic investment and see a video about it at

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