It looks like a blue mothball
March 12, 2010 11:42 AM   Subscribe

NPR's Planet Money has bought a toxic asset. As announced on their podcast Tuesday and on Morning Edition today, the team's five reporters pooled $1000 to buy a stake in over 2000 mortgages, with the (highly unlikely) profits going to charity. Listeners can track the asset's progress, suggest it a name, and even watch it personafied in a two minute video.
posted by l33tpolicywonk (37 comments total) 10 users marked this as a favorite
 
What with the Fed sopping up mortages to the tune of over a trillion dollars last year, chances are pretty good they'll actually make money on the purchase. When the entire monetary system is focused around keeping particular assets good, no matter how bad their underlying fundamentals are, it's tough not to turn something of a profit.
posted by Malor at 11:50 AM on March 12, 2010 [5 favorites]


If there is a vocal equivalent of Backpfeifengesicht, Ira Glass and his imitators at Planet Money have it.

I was driving to traffic court when that Morning Edition segment came on. I didn't just push the on-off button to off - I pushed it hard.
posted by Joe Beese at 11:56 AM on March 12, 2010 [3 favorites]


I have to agree with Joe Beese. I don't think this is anything more than a stupid pet trick.
posted by parmanparman at 12:00 PM on March 12, 2010


Backpfeifengesicht

I have the same impulse when I see you poop in a thread. So, it's all good.
posted by found missing at 12:08 PM on March 12, 2010 [13 favorites]


I don't think this is anything more than a stupid pet trick.

I would welcome a suggestion for a journalist, group of journalists or news outlet that's done a better job (or even a passable job) of explaining what a toxic asset is, how the average one is bought and sold or what exactly the Fed is getting itself into when it buys all of them. I didn't realize this was "hate on informative infographics" day on Metafilter.
posted by l33tpolicywonk at 12:08 PM on March 12, 2010 [6 favorites]


While yeah, they are probably going to make back their 1000 and then some, the fact that it used to be worth more like $75,000 it's a pretty good takeaway of the whole housing bust.
posted by aspo at 12:09 PM on March 12, 2010


"I was driving to traffic court"

Ironic.
posted by mr_crash_davis mark II: Jazz Odyssey at 12:13 PM on March 12, 2010 [3 favorites]


Our entire financial system feels like a toxic asset: Lehman Cooked Books Before Collapse, Report Finds
posted by HP LaserJet P10006 at 12:16 PM on March 12, 2010 [2 favorites]


They're not trying to resell their asset. They're just hoping that they keep getting paid long enough to make back their investment. As the houses are sold, they make less and less money, and at some point (probably in the next few months) they stop getting paid altogether and the asset becomes worthless. It's my understanding that there's no way the asset could gain value.
posted by Stylus Happenstance at 12:19 PM on March 12, 2010


American economic supremacy was established with weapons. Everything else is just smoke and mirrors.
posted by polyhedron at 12:19 PM on March 12, 2010


polyhedron: "American economic supremacy was established with weapons. Everything else is just smoke and mirrors."

I suspect you mean the use of weapons. But it might be truer to say it of the manufacture of weapons. If you look at the numbers that American industry put out during World War II, they're truly remarkable.

What I'm saying is: It wasn't always smoke-and-mirrors, though it certainly is now.
posted by Joe Beese at 12:26 PM on March 12, 2010 [1 favorite]


>: If there is a vocal equivalent of Backpfeifengesicht, Ira Glass and his imitators at Planet Money have it.

It's called an "NPR voice". I bet they close their eyes and raise their eyebrows when they talk.
posted by dunkadunc at 12:32 PM on March 12, 2010 [2 favorites]


Looking through that tracking timeline reminds me a lot of looking at stats from Prosper, the peer to peer lending site. Which makes sense because Prosper had a lot of the same problems and outcomes as the mortgage crisis. I funded my loans on Prosper about three years ago (which means they are all coming due and I can finally delete my account, yay!) so it's pretty much the same timespan as well.

In late 2006 (when Planet Money's toxic asset was created), interest rates were high compared to now (you could get a short-term CD at around 6%, rather than the 2% you can get these days) but people were still looking for higher rates. For Prosper, that meant choosing high risk but high interest rate loans for people with poor credit ratings. Some of those high risk borrowers would of course default on their loans, but the thinking was that since a lender would be making all sorts of money on the good loans, the bad ones wouldn't put much of a dent in the profit. Prosper themselves also helpfully posted some projected default rates for the various credit grades that were low by a huge amount (for example, they apparently said D grade credit ratings were going to have a 6.2% default rate, whereas as of today completed loans for that grade defaulted at a rate around 36%). Since the lending rates were set by a bidding system and most Prosper lenders were either clueless or extremely optimistic about default rates, that meant that most loans were funded at rates that would never be high enough to average out the defaults.

The results on Prosper were of course a bloodbath for most lenders, and since the statistics are public you can look at for example the guy who lost half a million dollars (so far) in defaulted loans. Prosper themselves didn't actually take a stake in any of the loans, so they are still running the site and have in fact setup a market for people to trade their loans. So if you want to own your own toxic assets, Prosper might be a good place to go buy some.
posted by burnmp3s at 12:41 PM on March 12, 2010 [6 favorites]


But if you buy a thousand bucks worth of toxic assets from NPR, you get a free tote bag.
posted by box at 12:44 PM on March 12, 2010 [5 favorites]


HarborView Mortgage Loan Trust 2005-10 10-K.

Having just quickly looked through this, they may actually profit nicely off of it. Is this paying off monthly dividends? Because if it is, they put in $1k and made $332 in a single month. That's a 33% rate of return, monthly. All the fund has to do is stay liquid for 3 more months and they've made their money back.

It is highly speculative, but that's kind of the idea of the market. If things are risky their values are low, so this isn't really a good example of what makes a toxic asset. A far better illustration is to go to the little interactive graph and see the slippage from 0->May2008. Very, very low risk and the boom, it blows up.

Then again, I spent about two minutes looking through this as I'm a bit busy so, I could be talking out of my ass ...
posted by geoff. at 12:44 PM on March 12, 2010 [1 favorite]


Can anyone tell how much they paid for it? They seem to imply they paid 1,000 for 75,000 of face value, but it's not clear.

Anyway, it's not a senior tranche. Looks like there are about a dozen tranches senior to this one.

Bloomberg says there's about 7% collateral coverage currently (excl 90+ day delinquents, REO and foreclosures). If they paid $1 for every $75 face, that's 1.3% of face. So the coverage at that price is 5.4x (7% / 1.3%).

Interesting.
posted by mullacc at 1:08 PM on March 12, 2010


All the fund has to do is stay liquid for 3 more months

Not necessarily. My understanding is that they're getting a cut of the payments made towards the loans in the big pool that is the "bond", but every month more and more of them are going into default/foreclosure. Which means less of a payment every month.

This whole thing seems like a big game of financial musical chairs, with everybody trying to wring as much out of these awful investments before they get their seat taken away. I like that they actually ponied up and bought a share of one of them, though; after all, the best way to learn is by doing.
posted by backseatpilot at 1:12 PM on March 12, 2010


Can anyone tell how much they paid for it? They seem to imply they paid 1,000 for 75,000 of face value, but it's not clear.

They paid $1,000 cash for a share in the investment which, at the height of the bubble, would have set somebody back $75,000. If you listen to the podcast I linked in the OP, they explain that they have a particular grade in the investment where there are several people who get paid shares before they do, and so they're not doing as well with this investment as someone who bought in earlier.
posted by l33tpolicywonk at 1:16 PM on March 12, 2010


Just as "junk bonds" needed to be re-branded as "high-yield bonds", we'll need to come up with a new name for "toxic assets".

Maybe "recycled assets".
posted by Joe Beese at 1:16 PM on March 12, 2010


Ira Glass and his imitators at Planet Money have it.

I'm not going to argue on Ira Glass--he definitely gives Elvis Costello a run for his money in the (MeFiPodcast-approved!) "adenoidal" department--but the PM correspondents are so far from that in my mind (so soothing! yet so intriguing!) that it's become my default running soundtrack.
posted by kittyprecious at 1:33 PM on March 12, 2010


They paid $1,000 cash for a share in the investment which, at the height of the bubble, would have set somebody back $75,000.

That's what I assumed, but I'm not sure it's right. I can't listen to the audio at the moment. Anyway, the bond pays down every month--that $75,000 price might have been on a large principal balance. They don't use the standard nomenclature in the articles, so I find it confusing.
posted by mullacc at 1:38 PM on March 12, 2010


Does this mean Planet Money has to issue a full disclosure notice every time they report on toxic assets, the way CNBC does?
posted by pwnguin at 2:05 PM on March 12, 2010


I enjoy Planet Money and have found their explanations about finance helpful. I don't really like this though. They are straddling a line between journalism and entertainment. This lifts too many toes off the journalism side for me. There is a sort of Heisenberg effect of journalism. Reporting on a story becomes part of the story and changes it. Journalists are supposed to minimize that effect by striving to keep personal opinion and bias separate from the story.

I understand that Planet Money is not pure journalism but it seems like whatever educational value this has could have been accomplished as a purely pencil and paper exercise without actually purchasing anything. It makes me a bit squeamish when journalists have such a direct first-generation connection to a story. This is fairly small potatoes but I'd rather they erred on the side of impartiality.

On preview - what pwnguin said in much fewer words...
posted by Babblesort at 2:08 PM on March 12, 2010


It's like a financial tamagotchi! All it needs now is a cute theme song for when it dies.
posted by happyroach at 2:30 PM on March 12, 2010 [1 favorite]


I bet they close their eyes and raise their eyebrows when they talk.

When I make that face at my wife, she punches me in the arm. Every time. Hard.
posted by davejay at 2:48 PM on March 12, 2010 [1 favorite]


I press play on the latest Planet Money podcast whenever I see the colored in blue bulletpoint on my iDevice, but I think they've taken their eye off the ball.

They do a decent post-mortem, but I feel they should step into the investigative 'detective' role a bit more.
posted by vectr at 3:24 PM on March 12, 2010


I'm not going to argue on Ira Glass--he definitely gives Elvis Costello a run for his money in the (MeFiPodcast-approved!) "adenoidal" department...

Huh. Costello makes me stabby, but I'm fine with Glass and the Planet Money guys.

I don't really like this though. They are straddling a line between journalism and entertainment.

I don't have a problem with 'journal-tainment' per se, but things this specific seem vulnerable to hacking by the big boys. If TPTB decide it's worth it, they could inflate the price of this one investment*, and potentially give an falsely optimistic impression on these assets to PM and their listeners.

* Caveat: I'm not competent to determine how hard it is to determine which exact slice of the pie they have.
posted by ChurchHatesTucker at 5:46 PM on March 12, 2010


"When I make that face at my wife, she punches me in the arm. Every time. Hard."

She does that to you at the... height... of your intimacy?

not turning-japanese-ist
posted by Rat Spatula at 11:38 PM on March 12, 2010


They are looking at this 'toxic asset' as an object (or a little furry blue creature), and not what it really is, people over their head struggling to make payments and keep their houses.

NPR seems to be looking at this just like the big financial congomerates that created these financial vehicles and the resultant mess that nearly destroyed our economy.

I'd be more impressed if instead of tracking their 'asset' they tracked the actual people living in these houses. Maybe if they did many banks refuse to do, actually revalue the asset and renegotiate the loan on terms the people can actually afford, I might be impressed.

As it is, I'm very unimpressed--in fact I'm downright depressed by their attitude.
posted by eye of newt at 12:09 AM on March 13, 2010


I had a different take. I heard one of the reporters on the segment asking naive questions about how their purchase is "helping these people", and the financial guy patiently explaining that the people who are buying these assets are doing it to make money, not to help people. The reporters are demonstrating how these investors are taking a risk and hoping for a good return. Nothing that they do will have any effect on the underlying obligations.
posted by yclipse at 6:09 AM on March 13, 2010


Except that this isn't true. I heard a guy talking about this on NPR, and he said that one of the problems is that the banks refuse to devalue the assets. The reason they refuse to do so is that they would have to admit that a large portion of their holdings are worth a lot less than they are willing to admit.

But if they do take the hit and admit the reduced value of these assets, then they can be willing to be rational about the loans and how they affect the real people involved. They could offer the homeowners new terms that they can actually afford to pay. They would, in fact, make the assets worth a lot more, because foreclosures would go down, neighborhoods wouldn't degrade, and, as a result, the overall value of many of the houses in the 'asset' would be much higher.

But to do that they banks would first have to admit that the value of the asset is worth less than what they are admitting. So by acting this way, though, they are making the asset worth much less than it could be, and, more importantly, contributing to the real estate disaster that is happening all over the country.

Before all these securitized investment vehicles were invented, you could still invest in a collection of housing loans. But the way it used to work there weren't these blinders put on to the reality of the houses and the homeowners. The older investment vehicles actually listed all of the houses, their addresses, how much the loans were, and how much was already paid off.

These reporters are demonstrating, in fact participating, in how it should not be done. It makes me think that we haven't learned anything at all, and is very depressing.
posted by eye of newt at 9:11 AM on March 13, 2010


>the banks refuse to devalue the assets

Huh? The portfolio in question was originally bought for $2.7 million, but the total purchase among the investors who participated was $36,000, or 0.13% of the original sale price. So the bank or whoever it was who originally owned it surely devalued it at some point, maybe more than once. Someone took a hell of a loss on it - a real loss, not a loss on paper.
posted by yclipse at 9:53 AM on March 13, 2010


There are quite a few assets owned by the banks that are not called 'toxic', but probably should be. The problem is that this would (correctly) make the bank look a lot poorer than it appears to be on paper.
posted by eye of newt at 12:55 PM on March 13, 2010


Here's a link (pdf) that describes at least part of the issues better than I can.
It doesn't go into the issue of banks trying to hide the low value of their real estate securities, but it talks about how hard it is for investors to increase the value by modifying loans rather than allowing foreclosures to happen.

Some quotes:
"At the center of the efforts to perform loan modifications are servicers. Servicers are companies that accept payments from borrowers. Servicers are distinct from the lender, the entity that originated the loan, or the current holder, or investors, who stand to lose money if the loan fails....
Investors, unsurprisingly, are typically more fo-
cused on receiving the expected return on their
certificates than the details of loan modifications,
even where loan modifications have a large impact
on the pool as a whole....
Even when investors would favor modifica-
tions over foreclosure, they generally do not have
authority to directly control servicer actions. In-
vestors can usually only take action against a ser-
vicer through the trustee and then only if a
majority of the investors agree."

Money Planet is acting like these 'typical investors', tracking their return, without a care about the actual homes or homeowners involved, who is dealing with these homeowners (supposedly at their behalf), or what the chance that they will lose their homes and that more neighborhoods go down the drain. Who cares? It's just an investment. Let's miss the real story and instead have fun just tracking the return on our cute little fuzzy toxic investment.
posted by eye of newt at 1:30 PM on March 13, 2010


(oops, here's the link)
posted by eye of newt at 2:38 PM on March 13, 2010


>Investors can usually only take action against a servicer through the trustee and then only if a majority of the investors agree.

Eye is in fact leading us to an interesting point. Suppose that the reporters had bought the controlling share of this $36,000 purchase. Or suppose they get those who constitute a majority share to agree to a plan to modify the underlying mortgages. They have the power to direct the servicers to do whatever they decide should be done in managing these loans. If the loans - or some of them - can be modified to reduce payments or reduce the total mortgage obligation, or if they could convert a foreclosed home to a rental home, with an option to redeem the mortage later, some real progress could be made. The investors could in fact end up (1) making more money and (2) helping the people whose mortgages make up the portfolio.

The key point is that they've got a lot of room to maneuver. They have collectively invested $36,000 in this portfolio. They could reduce, collectively, the original $2.7 million in obligations down to $1 million, $500,000, or $250,000, and still make a lot of money.
posted by yclipse at 5:49 PM on March 13, 2010


Who cares? It's just an investment.

But isn't that the way your typical individual investor behaves? I mean, do you know what companies you own through your 401(k)? Do you send in your proxy votes? It's just an investment, after all.

We've been trained over the years to distance ourselves from the reality of what an investment means - a stake in whatever you're purchasing. You don't care if the companies you bought are fundamentally bad investments, just as long as you "get out" before the bottom drops out.
posted by backseatpilot at 6:35 PM on March 13, 2010


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