I'm not a linguist, but the term Toxic Asset when referring to the current housing crisis bothers me. Let's examine this shall we?
Banks refer to Toxic Assets as either the non-performing mortgages that are on their books or the foreclosed houses in their REO portfolio. What exactly does toxic mean:
A substance which is poisonous to a living organism.
When I think of a Toxic substance I think of poison and I think of someone who mistakenly ingested it and now is suffering.
Do I have any pity for the banks for voluntarily taking in these mortgages thereby reaping huge fees and income, sending the wrong signals to the marketplace and now suffering the consequences?
The other problem that I have with the term is that the assets themselves are not toxic. It is the price paid for them and the ability of the managers to do anything with them.
For example I am buying these toxic assets (the houses). It is not toxic to me, rather it is quite a productive asset. My friend Ed runs the helicopter division of his company. He recently took me on a trip from LA to Vegas by copter. If I were to own a helicopter it would be a toxic asset for me as I have no idea how to operate it or run it. However for his Company this is how they generate profits.
Similarly, it seems that the Banks have no idea, mandate or ability to turn these assets into productive ones. Why don't they try renting them out?, why can't they change the terms so that the loans are modified?
I'm sure there are valid answers to these questions. I am glad that the banks consider the assets toxic. My business does not and I am more than happy to swallow as many of them as my financial capacity allows.
Please contact me 650-799-4447 if more information is needed or at birenATsandalstone.com
