Investor Glossary-toxic assetInvestor Glossary-toxic assetInvestor Glossary-toxic assetInvestor Glossary-toxic assetInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Toxic Asset

The HTML to link to this page
 

A toxic asset is any asset that has a current market value significantly below its book value. Further, the market for a toxic asset is very illiquid. It is virtually impossible to sell a toxic asset at a reasonable price, if at all. A toxic asset has a damaging impact on any company's balance sheet. With many toxic assets on its books, a company can quickly become insolvent. Toxic asset was a term frequently used during the banking crisis of 2007-2009. In this case, the term toxic asset referred to collateralized debt obligations, credit default swaps, or mortgage-backed securities. A mortgage-backed security became a toxic asset as a result of the following... First, with the sharp decrease in house prices underlying the mortgage-backed security, its value dropped dramatically. Second, the holder of this mortgage-backed security couldn't find a buyer. Indeed, unless house prices went back to inflated high prices underlying most of those mortgage-backed securities, the purchaser of this toxic asset was guaranteed to lose money. Sharp decrease in value and illiquid trading markets are two key features of a toxic asset. Although the term toxic asset is often associated with assets tied to bad loans (i.e. toxic in nature), any asset can become a toxic asset in a price falling environment where demand dries up. When companies mark to market their assets, under certain economic conditions, a good asset can become a toxic asset.



Rate this Toxic Asset definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: 401a, real GDP, inflation, command economy, in escrow, cancelled check, ex-dividend, 1035 exchange, required rate of return, Key Rate Duration, stock market close, margin rate, average price per share, current ratio, deferred tax, Zero Cost Collar, stock split, EBITDA, implied volatility, LIBOR, balance sheet, risk management, FTSE, deferred revenue, per diem, labor relations, retained earnings, debt service coverage, phantom income, ex-dividend date, liquidity ratio, FICO score, 1031 exchange, annual return, option premium, covered put, 144a, wholly-owned subsidiary, irrevocable trust, APR, reverse mortgage, minority interest, open position, VIX, quality assurance, class C shares, dividends payable, limit order, diluted share


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use