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Toxic language
Ben W. writes:
Isn’t there something really stupid and silly going on through language with this term, “toxic assets?” How can something be called a “toxic asset?” Since when does an asset (positive) have a negative attribute (“toxic”)? The government is going to pay private investors to buy these “toxic” assets from the banks—to get them off their hands.LA replies:
It’s the kind of non-moral, non-judgmental language typical of the post Sixties culture. It contains an expression of distaste and disgust but without rendering intellectual and moral judgment. It’s like calling a violent criminal a “sleaze” instead of a criminal. “Criminal” is too judgmental, old fashioned, it implies a moral and social order that the criminal has violated. And modern people don’t feel comfortable invoking a moral and social order. But calling him a “sleaze” expresses the negative emotion one has toward him without calling forth any larger meaning beyond that. Ken Hechtman writes:
There’s a little more to it than that. Inside the banking industry, the term “toxic mortgage” originally had a very specific meaning. It referred to an attribute of the mortgage, not an attribute of the debtor. It meant a mortgage on a house whose market value had dropped so much that the debtor now owed more money to the bank than his house was worth. In that situation, even if the debtor could afford to make his payments, the rational thing for him to do would be to default on the loan—just hand the bank the keys and walk away. Bankers would call that “getting the jingle envelope.” LA replies:
Interesting. “Toxic” used in the sense you’ve described would make sense. But that’s not the way the word is used. It’s used to describe the entire complex of securities based on mortgages on which the home buyer has failed to make payments. Presumably these mortgages are NOT toxic in the sense you’ve used, otherwise there would be no point in trying to save them and the securities based on them. Ken Hechtman writes:
Also, the reason the hedge funds are going along with the scheme to buy up the “toxic assets,” or if you prefer, “loans made to deadbeats,” is very simple.Leonard D. writes:
I think the nomenclature “toxic asset” is quite appropriate to its referents. The banking system is uniquely privileged but also highly regulated. It is hard to serve two masters, one being private profit, and the other being the modern bureaucratic government. This makes for a kind of schizophrenia, which is mirrored in “toxic asset.” A loan is always an asset, no matter how lousy it is. (And how lousy loans are right now is simply not known—we sit on the edge of a knife.) On the other hand, the current inability to sell it at the high price levels that banks had become used to, means that it is “toxic” in a sense—that with its low mark-to-market value, it forces the bank to disgorge assets to get back within the parameters established by the government.LA replies:
Hmm. So the toxicity would refer then, not to the mere fact that the homeowners are behind in their payments or have defaulted, but to the fact that because of the poor status of the mortgages, the banks holding the mortgages cannot keep selling them and moving them around and combining and recombining them into MBS’s and tranches and other such incomprehensible b.s. in the manner that the current system requires. Which returns us to the origin of the problem: the weirdness of using home mortgages—and not just mortgages, but risky, subprime mortgages—as an object of investment.LA continues:
Perhaps this is a good moment to re-post my October 1, 2008 take-off on Bob Dylan’s “When the Deal Goes Down,” which I wrote when an agreement in the House of Representatives to save the securities industry broke down. No one seemed to like it then and may not now, but what the heck, this is my website. Posted by Lawrence Auster at March 30, 2009 09:38 AM | Send Email entry |