Need help with my writing homework on Planet Moneys Toxic Asset. Write a 1250 word paper answering;

Need help with my writing homework on Planet Moneys Toxic Asset. Write a 1250 word paper answering; The bursting of the housing boom brought into vogue many unheard of and to some extent novel terms and words like ‘subprime mortgage’ and ‘toxic assets’. Now, what are the ‘toxic assets’? One can certainly attempt a simple explanation to this term.

Means, if Mickey defaults, the ABC Bank gets the apartment. In a situation when the apartment is priced at $ 350,000, this mortgage definitely serves as an asset for the ABC bank. In case the bank needs money, it can sell this mortgage to somebody else. Anybody who buys this mortgage from the ABC Bank qualifies to get from Mickey, the agreed upon 7 percent interest. However, in a scenario where Mickey defaults and the price of the apartment falls to $ 250,000, the ABC Bank certainly loses a big chunk of its investment. True to commonsense, nobody will prefer to buy this mortgage from the ABC Bank. However, ABC Bank may choose to sell this mortgage to an investor, at a price deemed satisfactory by one. This investor buys the mortgage in the hope of gaining returns on one’s investment, a possibility which may not materialize. This mortgage will then qualify to be termed a ‘toxic asset’. To put it simply, a toxic asset deviates more on the side of high risk for any investor who buys it.

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With the dwindling of the housing boom, many banks and financial institutions repackaged such mortgages into varied bonds to sell to the prospective investors. These toxic instruments came with a variety of names like ‘Mortgage Backed Securities’, associated with instruments like CDS (Credit Default Swap) and CDOs (Collateralized Debt Obligations) (Planet Money, 2010b). During the nascent stages of the economic slowdown, toxic assets still commanded a good reputation. Yet, the investor response dived to lukewarm, as the recession evolved into a bleak reality.&nbsp.

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