Despite trillions of dollars of new government programs, one of the original causes of the financial crisis -- the toxic assets on bank balance sheets -- still persists and remains a serious impediment to economic recovery. Why are these toxic assets so difficult to deal with? We believe their sheer complexity is the core problem and that only increased transparency will unleash the market mechanisms needed to clean them up....The fundamental problem has remained untouched: insufficient information to permit estimated prices that both buyers and sellers find credible. Why is the information so hard to obtain? While the original MBS pools were often Securities and Exchange Commission (SEC) registered public offerings with considerable detail, CDOs were sold in private placements with confidentiality agreements. Moreover, the nature of the securitization process has made it extremely difficult to determine and follow losses and increasing risk from one tranche and pool to another, and to reach the information about the original borrowers that is needed to estimate future cash flows and price.
Bullshit - if the sellers accept the prices being bid by the buyers they'll instantly go broke. That's the real reason. The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
No, but they're booked at more than anyone is willing to pay for them. And if the valuation is brought in line with market prices it will crash the banks. The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
