Marketplace Whiteboard
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Toxic assets
If you've been following the problems encountered by the banks, you've probably come across the phrase "toxic assets." They've poisoned banks' balance sheets and brought them to the brink of failure. But what is a toxic asset, exactly? Marketplace Senior Editor Paddy Hirsch explains.
Hostile takeovers
We all know what a takeover is. That's when one company agrees to be bought by another. But what happens when companies don't agree and the takeover goes hostile? Senior Editor Paddy Hirsch explains.
Derivatives
Credit default swaps? They're complicated -- and scary! The receipt you get when you pre-order your Thanksgiving turkey? Not so much. But they have a lot in common: They're both derivatives. Senior Editor Paddy Hirsch explains.
Bonds, notes and bills
So much government debt! But what's the difference between the Treasury's bills, notes and bonds? Senior Editor Paddy Hirsch explains.
Inflation
Most economists agree that inflation of about 2% or 3% annually is a natural function of a growing economy. But people are worried government stimulus measures could spark much higher inflation. Senior Editor Paddy Hirsch explains
High-frequency trading
High-frequency trading is creating a ruckus on Wall Street. Marketplace Senior Editor Paddy Hirsch explains what high-frequency trading is and why some people are up in arms about it.
Factoring
Many small businesses get the cash they need to operate and expand from so-called factors. One of the biggest factors in the business is CIT, and with CIT on the ropes, small businesses are worried. Senior Editor Paddy Hirsch explains what factoring is, and how it works.
Financial alchemy
Many asset-backed securities have been downgraded from AAA recently. But at least one issuer has miraculously repackaged a downgraded deal to make some of its bonds worth a AAA rating again. Senior Editor Paddy Hirsch explains.
Where's the toxic waste?
Banks are paying back TARP money and claiming they're the picture of health. So what happened to all those toxic assets that were clogging their arteries a few months back? Senior Editor Paddy Hirsch explains.
Dark pools
Dark pools are exchanges where people trade stocks anonymously. Senior Editor Paddy Hirsch explains how they work, and why the SEC is considering regulating them.
The 'repo' market
Senior Editor Paddy Hirsch explains why the repurchase (or repo) market is a vital part of the financial system, and why the government is considering changes to it.
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Comments
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From Madison, WI, 09/11/2009
I was browsing around the website and realized that I never did get around to Paddy's video of "what makes a toxic asset toxic?". However, it seems that the video on this site has been mistakenly replaced with the "Public-Private Partnership" whiteboard video. I thought the Marketplace Staff might want to know. I look forward to seeing the Toxic Asset video when it's uploaded again!
From Saint Paul, MN, 03/20/2009
Paddy's explanation of "What is a Toxic Asset" was marvelously done! Thanks Much.
02/27/2009
Paddy,
Could you explain, from the point of the execution of a sub prime note and mortgage, through to the packaging and sale to the investors, who handles or owns this debt? Additionially, do you feel the Cummunity Reinvestment Act is the major culprit with the sub primes?
Thanks
From CO, 02/18/2009
Thanks for the considered comments by Sanoran and Paddy(you aren't from Ireland by any chance?). A phrase came to me the other day to explain some of the motivation behind the carelessness of all concerned, including Moody's, S&P, and the bank 'managers'--Insatiable Corruptibility.
And then there's Greenspan, not directly involved, but according to some of his statements in, "The Trillion Dollar Meltdown" he was just ad libbing from the start. He was in over his head I believe, as were all who turned a blind eye to the gathering storm. Recent history--from the last 2-3 decades--have shown repeatedly how the combination of some new 'investment vehicle' and deregulation have led to these very similar crises in the financial system.
Only this time the whole world gets to play! This makes Long Term Capital Management's fiasco seem tepid tea indeed. LTCM was misnamed, shoulda been Short Term Fraudulent Trading.
From OK, 02/01/2009
I second the question by Patrick Lim. If Toxic Assets are turning good money into bad, then what happened to the TARP? Where did our 700 billion dollars go?
As to the bankers due diligence... my question is about the Rating Agencies. I heard on the BBC, in early 2008 I think, that the agencies basically get payed by the companies they rate. Why did the bankers ever believe these agencies in the first place? Are the agencies not responsible too in some fashion?
From Mumbai, 01/30/2009
Awesome Awesome Awesome - just like all your other videos! Thanks Mr. Hirsch!
From Houston, TX, 01/29/2009
Keep up the good work! Excellent resource to put things in simple terms!
From Bethesda, MD, 01/28/2009
It´s extremely helpful. I just discover it and love it!
Could you please explain how the stock market works. I am thinking specifically at how the clearing house works. I can easily imagine how the a food market works, but not when it comes to stocks.
From CA, 01/28/2009
Thx. Great videos explaining the mess in a digestable form. I'm glad it looks like you guys will be outlining the proposed govt solutions as well. Would be nice to see why some ideas out there are "bad" too. For example, why is it a bad idea if the govt stepped in and helped carry the bad mortgages for a couple of years instead of feeding trillions to banks, etc.
From Boston, MA, 01/27/2009
Just wanted to say love the video-cast, the analogies provide a great frame of reference when trying to make sense of all the literature out there. So thanks again.
01/27/2009
Hi Sanoran,
Thanks for commenting. I'm sorry if you think I come across as making excuses for the banks. I certainly don't think the banks were innocent. There are no excuses for not knowing the true value of assets in your portfolio.
I'm afraid I don't agree with your argument that the bankers knew exactly what they were dealing with - recent precipitous falls in bank asset values show they have no idea. If they did know, they would have sold it all. That's not to say some smart people did understand. They're the ones who sold out months ago and are now sitting on cash.
In my opinion, the people responsible for the banks' collapse are the bankers: they were too lazy or stupid to do true due diligence on the assets they bought. They trusted ratings agencies that didn't have a full understanding of the assets concerned, and they underestimated the depth of this downturn and the effect it would have on assets of all kinds and qualities.
From Washington, DC, 01/24/2009
Marketplace is doing its best to deceive the public :) ! Mr. Paddy Hirsch repeats more than ten time, in form or other, "... the banks did not know what assets they were holding.."! Mr. Henry Paulson of Goldmansachs and his cohorts at the banks may or may not be crooks, -but they are certainly not that naive. Does Mr. Paddy Hirsch have some backdoor to the bankers minds? Does he have any evidence proving that the bankers did not 'know'? I doubt it. The banks knew exactly what they were dealing with. It is their job. But they did not care. Their game was to try to pass on the 'hot potato' and make a buck from the transaction. They got their bonuses (thanks to Mr. Paulson) and they are laughing their heads off as Mr. Paddy Hirsch pleads to us how innocently unaware the banks were! Since it is unlikely he can read minds, either Mr. Paddy Hirsch is well compensated for preaching the innocence of bankers or, more likely, he is inordinately gullible. But he does a very good job of portraying how the bankers were completely innocent, and this problem just happened! "Things don't happen, they are brought about". Mr. Paddy Hirsch could prove to us that he not as gullible as he sounds by investigating how and by whome this crisis was brought about rather than repeating again and again that '... the bankers did not know... "! If I wanted tax money thats what I would say too :)
--Sanoran Triamesh
From Washington, DC, 01/24/2009
Marketplace is doing its best to deceive the public :) ! Mr. Paddy Hirsch repeats more than ten time, in form or other, "... the banks did not know what assets they were holding.."! Mr. Henry Paulson of Goldmansachs and his cohorts at the banks may or may not be crooks, -but they are certainly not that naive. Does Mr. Paddy Hirsch have some backdoor to the bankers minds? Does he have any evidence proving that the bankers did not 'know'? I doubt it. The banks knew exactly what they were dealing with. It is their job. But they did not care. Their game was to try to pass on the 'hot potato' and make a buck from the transaction. They got their bonuses (thanks to Mr. Paulson) and they are laughing their heads off as Mr. Paddy Hirsch pleads to us how innocently unaware the banks were! Since it is unlikely he can read minds, either Mr. Paddy Hirsch is well compensated for preaching the innocence of bankers or, more likely, he is inordinately gullible. But he does a very good job of portraying how the bankers were completely innocent, and this problem just happened! "Things don't happen, they are brought about". Mr. Paddy Hirsch could prove to us that he not as gullible as he sounds by investigating how and by whome this crisis was brought about rather than repeating again and again that '... the bankers did not know... "! If I wanted tax money thats what I would say too :)
--Sanoran Triamesh
From Pasadena, CA, 01/23/2009
Great metaphor for the TARP, or at least the original intent: Paulson wanted to unload the expeditioners' troubled assets. But then he decided to recapitalize the banks instead. How does that fit into the Antarctic Expedition metaphor? Thanks.
From Dallas, TX, 01/22/2009
Best, most concise explanations found to date. Thanks.
01/21/2009
This is an excellent discussion of toxic assets. Very sobering to realize the situation that we are in.
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