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Toxic Assets

Toxic Assets Definition

"Toxic asset" is a popular term for certain financial assets whose value has fallen significantly and for which there is no longer a functioning market, so that such assets cannot be sold at a price satisfactory to the holder. The term became common during the financial crisis of 2007–2010, in which they played a major role.


Additional meaning of Toxic Assets:

When the market for toxic assets ceases to function, it is described as "frozen." Markets for some toxic assets froze in 2007, and the problem grew much worse in the second half of 2008. Several factors contributed to the freezing of toxic asset markets. The value of the assets were very sensitive to economic conditions, and increased uncertainty in these conditions made it difficult to estimate the value of the assets. Banks and other major financial-institutions were unwilling to sell the assets at significantly reduced prices, since lower prices would force them to reduce significantly their stated assets, making them, at least on paper, insolvent.


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