As I have long said, there is no such thing as toxic assets, only toxic prices:

“Investors’ belief that the worst is over for the U.S. housing market is fueling renewed interest in once-toxic mortgage bonds that were at the heart of the financial crisis.

Prices of some distressed bonds backed by subprime home loans—those issued before the crisis to borrowers with sketchy credit histories—have chalked up double-digit percentage gains this year, with one prominent market index rising 14%.

The rally has drawn investors back to a corner of the credit markets that was pummeled from 2007 to 2009 and has been volatile since . . .

The recent resurgence in battered mortgage bonds that were left for dead during the crisis reflects how investors’ appetite for risk is returning, even after many banks and hedge funds lost money last year on similar assets.

But this time around, investors say many subprime bonds are looking attractive because their prices reflect a doomsday scenario that may not materialize, even though the housing sector remains in the doldrums.

Bonds that yielding 7% to 9% are attractive if you can buy them at a price that appropriately reflects the risk of loss.


Toxic? Says Who? Taste For ‘Subprime’ Returns
WSJ, FEBRUARY 16, 2012

Category: Bailouts, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “No Such Thing As Toxic Assets . . . Only Toxic Prices”

  1. dead hobo says:

    Speaking of toxic prices, the report the ECB will swap Greek bonds for Greek bonds and declare a profit is flabbergasting.

    In principle, the ECB bought $100 of bonds at a discount from a desperate Greece for $75 and booked a $75 asset in bond investments. Given current events, the bonds are probably worthless. To avoid having to report a $75 loss on the books when the bonds were declared worthless, the ECB will exchange the $100 face value bonds purchased for $75 and carried at $75 for new bonds from Greece, face value $100 but to be carried on the books at $100, thus declaring a profit of $25. The $25 profit will be distributed to EU members as newly printed money.

    Only billions of euros are involved. Not $100.

    That is one bold printing press. How will the other bond holders get free money out of this?

  2. Sechel says:

    I wonder..
    Subprime deals have had huge liquidations and still have high delinquenices in many cases. Could it be the easy to liquidate loans have been flushed leaving new investors with zombie loans that refuse to die and servicers that refuse to advance?
    When the sellers claim they ‘ve stressed severities and are offering that information to you, maybe their’s a variable that hasn’t been studies or offered up as a potential red flag.

  3. dead hobo says:

    Oh, I know. The ‘profits’ will be used to pay the interest due March 20, kicking the can down the road. Just wait for the announcement.

  4. constantnormal says:

    Seems to me that being unable to either determine a believable valuation or to establish a credible risk of loss (I see these as a kind of a duality, different sides of the same coin) pretty much qualifies an investment as “toxic”.

  5. AHodge says:

    Amen to the title
    the very label “toxic” is a bad one
    they dont want to dissappear the assets
    just get full price.
    so while its 3 years since they should have taken a proper writedown and cleaned up the system
    they finally stop complaining its “Fire Sale,” another real bad label, and start doing something
    But the other trillion or so of non marked crap still there is a multiple of subprime.

  6. RW says:

    I’ve been dabbling in these waters via a couple hybrid mREIT’s whose managements have demonstrated an ability to handle these kinds of goods in this environment but I don’t kid myself: 16% yields are very welcome and the downside may be smaller than the upside for a change but these outfits are still selling at book so a plunge to zero has to be accepted as a possibility; i.e., my position sizes are “non toxic.”

  7. Mike in Nola says:

    No doubt contributing to the trend are the persistent rumours that QE3 will consist of the Fed buying MBS and bailing out these jerks, a big one being PIMCO.

  8. CitizenWhy says:

    Absolutely. The scariest word on Wall St is “mark to market.” Will never happen. Bankers rule.