趣话金融：有毒资产Toxic Debts & Toxic Assets

Background:

In the financial marketplace, new buzzwords have been popping in recent years all over the media, including in TV talk shows and newspaper articles. Two phrases in particular, “toxic debts” and “toxic assets,” have received a lot of attention in the financial world. Both terms were originated in the US and first appeared as early as in 2006. Toxic debts and assets refer to non-performing assets or non-performing loans. In other words, the assets or loans do not yield or generate income for the lender, and people who received the loan do not have the means to repay the loan. These assets were once valuable but later lost this value or became completely worthless because of the financial crisis. Because these assets are no longer valuable, they became “toxic” to the bank. Toxic debts and assets corrodethe bank’s inherent value and, comprise its ability to make loans to consumers. If such a vicious cycle were to continue, the bank eventually would not be able to survive. How could this ever happen?

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Tom: How could toxic debts or assets ever happen in America?

Tina: Toxic debts or assets occur for many reasons. I am sure you know that toxic assets are acquired or purchased at prices that do not actually reflect the real value of the properties.

Tom: So, in other words, the properties were sold undervalued? How could this happen?

Tina: Yes, let me give you an example: Mike bought a house two years ago. The house was worth $160,000 when he purchased it. He paid $10,000 as down payment, and he got a loan from ABC bank for $150,000. The house is collateral.

Tom: What kind of interest does he have to pay?

Tina: For a 30 year loan, the average interest rate was 5% at that time.

Tom: When you say “the house is collateral,” does it mean that before Mike pays off the loan, the bank actually owns the house?

Tina: Exactly. The bank owns the house because it owns the “mortgage paper.”

Tom: So, mortgage paper itself is an asset?

Tina: That’s right. Now if Mike defaults his loan, the bank can legally take back the house.

Tom: You mean if Mike lost his job, he can no longer make his monthly payment to his bank?

Tina: Yes. Let’s say, a year later, Mike was to get laid off. He would no longer have monthly income to pay for his mortgage. Also, the value of the house was greatly reduced from $160,000 to $100,000 because of housing market crash. Mike would still owe the bank almost $150,000.

Tom: How come? Wasn’t he paying for his mortgage during that year?

Tina: Well, for a 30 year mortgage, the monthly payments for the first few years are mainly applied towards the interest and very little goes to the principle.

Tom: Is that so? I didn’t realize that.

Tina: If you study your monthly mortgage statement, you should be able to figure this out. As said, the “mortgage paper” itself is an asset, and the bank can sell the paper to another bank or financial institute if the bank wishes.

Tom: Why would the bank want to sell the “mortgage paper” to another bank?

Tina: If the bank needs cash immediately, the bank can bundle up a bunch of mortgage papers and sell them to other banks. It is a quick way to raise money.

Tom: But who wants to buy undervalued properties? Why would someone pay for an asset that guarantees you will lose money?

Tina: That’s exactly what the problem is. If the bank could not sell the mortgage papers to raise cash, the mortgage papers become illiquid.

Tom: So illiquid mortgage papers become “toxic assets” to the bank?

Tina: Exactly. If housing prices continue to drop, the mortgage becomes even more toxic.

Tom: Are toxic assets related to “toxic” debts?

Tina: No question about it. Toxic debts refer to debts that have a lower chance or no chance of being repaid with interest. In other words, the debt is toxic to the bank or institute that will receive the payments.

Tom: What are the most common toxic debts nowadays?

Tina: There are many different types of toxic debts. Among them, mortgage debt is one of the most common.

Tom: Toxic debt has now become such a common household word; I’ve been hearing about terrible things associate with toxic debts.

Tina: No kidding. Toxic debts include items that have suddenly lost their value and become worthless and sometimes refer to items that are simply too difficult to estimate the worth of them and thus, become worthless.

Tom: I guess the eruption of global financial crisis has something to do with toxic debts and assets in the US. How do we avoid another financial crisis from happening again?

Tina: Stop being greedy. Michael Douglas said in his famous movie Wall Street that “Greed, for lack of a better word, is good.” I think, however, greed is a bad thing.

Tom: The role that Michael Douglas played in the movie is a portrait of a typical Wall Street ruthless tycoon. I agree with you, greed is evil—greedy people can do evil things.

Tina: I could not agree with you more!

(Edited by Samuel Peterson & Jeanne Knechtges Peterson)

Vocabulary

toxic debts & toxic assets 有毒的债务和资产，关于详细内容请看本篇的解释

buzzword 行话，术语，这类词语通常没有特殊的意义，只是用来吓唬听不懂行话的外行人

pop in 〈口〉突然出现

non-performing assets 不良资产，即不会赚钱或生利的资产

non-performing loans 不良贷款，这类的贷款不是倒账就是逾期不还

yield 带来(利益等)

corrode 侵蚀，腐蚀

inherent value 内在价值，固有值

comprise 包括，包含

vicious cycle 恶性循环

acquire 并购

undervalued 估价过低的，低估的

down payment 定金，首期付款，通常指分期付款的第一笔定金

collateral (以房屋、房契作为)担保的，抵押的

mortgage paper 抵押契据，抵押单，这里指“房屋抵押契据”

default 违约，不履行债务，拖欠

get laid off 被解职，解雇

housing market crash 房屋市场崩溃，房市大跌

principle 这里指的是房屋贷款的“本金”

bundle up 文中指把许多房屋抵押契据“捆绑起来”一起出售

illiquid (资产等)不能立刻兑换成现金的，非流动(资金)的

eruption 突然发生，爆发

ruthless tycoon 无情无义的(金融或企业界)巨头