toxic debt
Worthless loan assets
Toxic debt refers to loans or other debt instruments that have little chance of being repaid, often because borrowers have defaulted or the underlying assets have collapsed in value.
The term gained currency during the 2008 financial crisis, when banks held vast quantities of mortgage-backed securities that became nearly worthless: The government created programs to buy toxic debt from struggling banks.
The modifier toxic suggests these assets poison balance sheets and spread damage through financial systems.
Under top credit tier
- securitizationBundling debts into investable instruments
- write-downsFormal value reductions
- credit crunchSevere reduction in lending
- asset-backedSecured by underlying property
bad bank · impairment · illiquid · haircut · underwater · bailout · credit risk · leverage
Reduce in status
- junk bondLow-rated corporate debt
- credit ratingAssigned measure of borrower reliability
- speculativeBased on conjecture
- high-yieldProducing substantial returns
fallen angel · rating agencies · S&P · Fitch · credit default swap · bondholders · investment grade · creditworthiness
Legal status when insolvent
- insolvencyInability to pay debts
- foreclosureLender seizes mortgaged property
- delinquencyCriminal or neglectful behavior
- nonpaymentFailure to settle debts
arrears · write-off · bad loan · defaulter · repossession · liquidation · receivership · creditor
Major 2008 economic decline
- Lehman BrothersDefunct investment bank
- housing bubbleUnsustainable property price surge
- subprime mortgage crisisRisky loan defaults cascade
- systemic riskEconomy-wide collapse potential
bank failure · credit freeze · market collapse · meltdown · too big to fail · TARP · quantitative easing · austerity
Overwhelming in intensity
- overwhelmingIntensely excessive in force
- cripplingCausing severe impairment
- stranglingCompressing throat to suffocate
- suffocatingDepriving of air
unmanageable · insurmountable · albatross · millstone · overleveraged · deleveraging
subprime
Under top credit tier
- securitizationBundling debts into investable instruments
- write-downsFormal value reductions
- credit crunchSevere reduction in lending
asset-backed · bad bank · impairment · illiquid · haircut · underwater · bailout · credit risk · leverage · contagion
downgrade
Reduce in status
- junk bondLow-rated corporate debt
- credit ratingAssigned measure of borrower reliability
- speculativeBased on conjecture
high-yield · fallen angel · rating agencies · S&P · Fitch · credit default swap · bondholders · investment grade · creditworthiness · risk premium
bankruptcy
Legal status when insolvent
- insolvencyInability to pay debts
- foreclosureLender seizes mortgaged property
- delinquencyCriminal or neglectful behavior
nonpayment · arrears · write-off · bad loan · defaulter · repossession · liquidation · receivership · creditor · collateral
Great Recession
Major 2008 economic decline
- Lehman BrothersDefunct investment bank
- housing bubbleUnsustainable property price surge
- subprime mortgage crisisRisky loan defaults cascade
systemic risk · bank failure · credit freeze · market collapse · meltdown · too big to fail · TARP · quantitative easing · austerity
crushing
Overwhelming in intensity
- overwhelmingIntensely excessive in force
- cripplingCausing severe impairment
- stranglingCompressing throat to suffocate
suffocating · unmanageable · insurmountable · albatross · millstone · overleveraged · deleveraging
- housing crisishousing bubble, housing crash, subprime mortgages, foreclosures, subprime loans
- Bailoutsbailout, bank bailout, bank bailouts, rescue package, rescue fund
toxic debtgovernment bonds
State-issued debt securities
municipal bonds · secured debt · certificates of deposit · savings bonds
debt, toxic, intoxicated, nontoxic, indebted, debtor, intoxicating, intoxicate, intoxication