Where Are Toxic Assets Now?

BY busadmin  August 12, 2009 at 11:01 AM EDT

bank safe; via Flickr

Question: TARP was originally proposed to deal with “toxic assets” to unclog the books of financial institutions and prevent them from becoming insolvent. The toxic assets to date have not been bought up, so where are the toxic assets now? Are financial institutions still in danger of insolvency?

Paul Solman: Several hundred billion dollars of them are held by the Fed. Others, by the investors that bought them. Others, by financial institutions. Some have been written down in value, so the losses have already been taken. Some have gained considerable value due to the apparent upturn in the economy. Finally, with the suspension of mark-to-market accounting rules, some toxic assets are being held at inflated values, in the hopes that they’ll eventually be worth the price paid for them.

Financial institutions are ALWAYS in danger of insolvency if they gamble with the money entrusted to them. But that’s how they MAKE money. They seem to be in less danger today than anytime in the past year.