Toxic Assets

Just what is a toxic asset? Did they get some assets and store them wrong and then they went bad like so much milk? Now they smell funny and threaten to contaminate the rest of the assets. Oh no, my assets turned toxic. Let me go out and bury them with my toxic waste.

To put it simply a toxic asset is basically a bank loan or security -- more specifically a mortgage-backed security (MBS)- that has gone bad. So why don't they just say that? Bad loans. They messed up. They made a bunch of loans that they shouldn't have, they went bad, and now they are in trouble.

Revisiting the AIG thing, it turns out that Sen. Dodd was under pressure from the Treasury Department to allow the loophole for AIG to hand out bonuses. Now who in the Treasury Department has the clout to do that? Could it be Timothy Geithner, Obama's treasury secretary?

Former New York Gov. Eliot Spitzer claims the AIG bonuses are negligible compared to the payouts made to their customers, or counterparties, which includes $12.9 billion to Goldman Sachs (former Treasury Secretary Hank Paulson's old company). It seems the whole $170 billion bailout was to pay off insured investment companies and banks that would've otherwise gone under. But would they have really?

Last week congress passed a bill that would tax at 90% the AIG bonuses. Cooler heads prevailed at the White House today saying such a move would have legal ramifications that would prevent it from being enforced. Meanwhile, bonuses are being returned. Apparently some people have a conscience.

Republican Sen. Judd Gregg said today that the US will be bankrupt in 10 years if Pres. Obama's economic plans are continued. This is the same senator that the president nominated to be his commerce secretary but reneged claiming unreconcilable differences with the fiscal policy. Appearing on John King's CNN show, State of the Union, Gregg spoke of the GDP and the GNP with percentages of one to the other saying that Obama spending could not be sustained. Didn't Obama himself say basically the same thing, that we have to get the deficit down? That would cut spending.

The US housing market (as measured by household net worth) dropped 9% in value last year, an estimated $11.2 trillion. That's trillion with a T. If a billion is 1000 million then a trillion is a million million. That's lots of millions of dollars. A stack of $100 bills equaling $1 trillion would be something like 1000 km high or over 600 miles. A jet airliner flies five or 6 miles high. Our stack of $100 bills would be 100 times higher than that, out in space, much farther out than even the space shuttle orbits.

Speaking of the space shuttle, Discovery is maneuvering the International Space Station into a lower orbit to avoid a piece of Chinese space debris. Part of a spent rocket, the 4 inch diameter orbital rubble would've otherwise threatened Monday's spacewalk. Today marks the midpoint of the shuttle's 13 day mission to the ISS. Let's wish them a safe return in a week.