Definition of toxic assets

Financial assets the value of which has fallen significantly and may fall further, especially as the market for them has frozen. This may be due to hidden risks within the assets becoming visible or due to changes in the external market environment, or both.

Many of banks' problems in the financial crisis were due to such toxic assets, such as securitisations of subprime mortgages, where the original creators of the securities failed to take into account the real rate of mortgage default and the extent to which it would be contagious across securities.

Assets that were rated AAA and worth a lot suddenly looked  like junk bonds and were worth a fraction of their previous value, if indeed it was possible to find a price at all in a market where no one wanted to buy them.  [1]

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