Back in January, NPR’s Planet Money bought a portion of a toxic mortgage backed security. They hoped that by making the $1000 investment that they would learn a few things, and hopefully not lose all of their money. They got both.
Now if you’ll remember a toxic asset referred to any number of investments that became virtually worthless during the financial crisis. Many of them were backed by mortgages or other loans. Investors, such as pension funds, hedge funds, insurance companies, and anyone else with a large amount of cash they wanted to invest, purchased these assets from banks and mortgage companies. They received a steady flow of cash as the borrowers would make payments on their mortgages. As long as everyone payed up, there were no problems. But of course, people stopped paying.
Planet Money used the asset, which they named “Toxie”, to sort of retrace the steps of the financial crisis. Well after almost 9 months of tracing, their asset has died. That means the dwindling stream of mortgage payments has dried up. They will no longer receive any payments. The total they received was less than $500, which amounts to a negative 50% return.
Now Planet Money knew they were buying a dying asset, and didn’t expect a specific return. Surely they get more than $500 worth of content out of Toxie so don’t feel too sad for them. One example of the things they did was they actually went and found some people who had the mortgages they now owned a slice of. One of them was a 81 year old man who bought a house in Florida but couldn’t afford it after long and left. Another is in an FBI investigation for a ring of investors that lied to banks to get more loans than they should have. Some were just investment properties, and some were legitimate homeowners. It really puts a face on the problem.
Now Toxie is dead, but you can follow the whole story using the link at the top.