Toxic assets are a type of asset normally of the type Investment fund characterized by having a high risk in relation to the possibilities of recovering its value. Toxic assets are created after the granting of innumerable mortgages to people and entities with a low economic solvency.
These mortgages were usually formalized with a mortgage guarantee whose real value is well below the value given in times of speculation. The term toxic asset has become extremely popular in recent times, especially after the subprime mortgage crisis of 2008.
Origin of toxic assets
Toxic assets have their origin in the succession of a series of circumstances and events that caused many people and entities to get into debt in mortgage operations that they could not pay, giving rise to this type of assets that we call toxic. The main factors involved in its appearance were the following:
One of the main causes of the appearance of toxic assets is poor management of risk analysis. These analyzes were conducted over the years to authorize the granting of Mortgages, incorrectly evaluating potential debtors.
Another reason for toxic assets was overly aggressive lending strategies, where the priority was to increase the asset portfolio.
In addition, the development of those considered toxic assets was also influenced by the confluence of a period in which interest rates they were really low, making access to credit even more attractive.
Value of guarantees
Finally, another of the determining factors in the appearance of toxic assets was the drastic decrease in the value of collaterals, which were initially valued according to the speculative trend, well above their real value.