'Planet Money' Bought A Toxic Asset, Now You Can Watch It Slowly Die
Way, way back in the go-go days of predatory lending, terrible mortgage companies were handing out terrible mortgages to just about anyone with a pulse. Then, everyone began placing elaborate bets on whether those mortgage holders would default on those mortgages or not. To lessen the risk, great heaping gobs of mortgages were rolled into massive credit derivative burritos which were speculated on again. Then, when everyone started defaulting, the bets couldn't be covered and the economy very nearly went down the toilet.
The worst was averted, but now, the economic landscape is dotted up and down with the ruined remnants of the original financial instruments: the terrible mortgages. These have become known, in the popular parlance, as "toxic assets." Now, thanks to "Planet Money", you can watch one of these toxic assets slowly keel over and die in real time.
"Planet Money"'s reporters pooled $1,000 together and purchased a piece of a toxic asset this year and are letting people track the progress of the investment online. If they end up making a profit, they'll be donating the money to charity. But, ha ha! That's not going to happen, because the toxic asset is like one of those Tamagotchis with a terminal illness.
Here's some fun perspective for you, from a Reuters article yesterday:
The Federal Reserve bought $10 billion net of agency mortgage-backed securities in the latest week, the New York Fed said on its website on Thursday.
The amount was unchanged from the previous week's net purchases.
The purchases brought the U.S. central bank's purchase of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to roughly $1.226 trillion since January of 2009.
The Fed said it bought $29.425 billion gross of agency MBS from March 4 through March 10. At the same time, it sold $19.425 billion in mortgage securities.
The Fed aims to buy $1.25 trillion of agency MBS in a bid to bring down mortgage rates and to stimulate the battered housing sector and the overall economy.
Now, not all of those securities are toxic assets, but still! We bought $10 billion worth of mortgage-backed securities JUST LAST WEEK. So remember, as you watch "Planet Money"'s cute little asset sicken and die, it's also like watching a piece of yourself die!
Tracking Our Toxic Asset [Planet Money]