The Toxic Avenger
                                                © 1991 Marvel Comics

Toxic assets? What are they talking about?

It’s OK with me if bank regulators and accountants continue to obscure the passing of the investor-owned banking industry.

But could they at least keep their hands off the language? Assets are:

• Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.

Source: Investorwords.com

That is, assets are “good” things that fall in the “nice to have” category.

The “Toxic assets” phrase refers to “misunderstood” mortgage and credit-related assets that now bloat bank balance sheets. It is said that they cannot be sold at a “fair” price. But there is no such thing.

“Toxic assets” is simply a polite 21^st century euphemism for:

• These are assets that we have improperly marked way too high, and they should really be valued at a much lower price.
• We would like to do this, but can’t. If we did so, it would make our institution insolvent and would probably lead to the destruction of the free world, as we know it, as well as Our American Way of Life.
• So would you please watch “Dancing With The Stars” and leave us alone, we know what we’re doing!

The term “toxic assets” is a term that financiers borrowed (they were in a borrowing mood) from the “toxic waste” produced by the (previously seen as nasty) materials or manufacturing sectors – chemical or material byproducts that pose a long-term health hazard.

But “toxic assets” can only BE toxic if their marked price is set too high – once the price has been set low enough, the damage has been done, we can roll up the insolvent institutions, and get on with the beginning of the recovery.

Who is fooled by this terminology? According to Google and Yahoo!, not many.

Figure 1: Google Hits for “Toxic Assets” & Company Name, March 10, 2009.

Above [See Figure 1] is a list of the names of 10 financial firms that I’ve haphazardly plucked from the holdings of the Financial SPDR ETF, XLF. I’ve included each company’s stock symbol as well as the number of “Google Hits” for that company’s name and the term “Toxic Assets.”

If you plot these “hits” against the percentage change in each company’s stock price, for Feb 2008 through Feb 2009, you get something like this:

 
Figure 2: Google Hits and Company Stock Price Decline, Feb ‘08 – Feb ‘09

It’s pretty clear that no one is fooled by the terminology, and this can also be seen in the following scatterplot, which charts the percentage decline in stock prices against the Google hits:

Figure 3: Google Hits (“Toxic Assets”) versus Company Stock Price Decline

Could we just get on with it, but leave the language alone. After what’s happened to our homes, the economy, our jobs, and any hopes for retirement, it’s all that we have left. Thank you!
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I used to work with numbers for a living. What will I find as I pass through the Meadowlands -  a new job, or at least my next idea? Till next time.