What are Troubled Assets?
It looks like the Obama administration may refocus the so-called Troubled Asset Relief Program on actually buying “troubled assets.” The idea of having the government buy troubled assets was what Congress thought it was approving when it passed the $700 billion bailout bill. But shortly after it received the authority to spend that money, Hank Paulson’s Treasury Department abandoned the idea in favor of making direct capital injections in troubled banks. Now, perhaps, the TARP may be used as originally intended. So what are “troubled assets” anyway? A surprising number of people are very confused about what these assets are and why they are crippling the global financial system. Phrases like “toxic assets” only serve to confuse things more, leading people to suspect that the assets are somehow radioactive or cancer-causing. The alphabet soup of CDOs, MBS, CDS, ABS only makes the eyes of ordinary people glaze over. At the very least, people tend to think the assets are troubled because
An asset is any type of property or financial instrument that is meant to be a store of wealth for the future, as well as creating wealth in the present. For assets to be called troubled assets usually means that they are depreciating and not creating wealth, but rather diminishing it. In the parlance of the United States government and Treasury Department, “troubled assets” mean specifically those which fall into either of two broadly defined categories. First, they include mortgages owed on either residential or commercial property, and any securities backed by these mortgages, whose purchase by the government would help in lending stability to the financial markets. The second category includes any other securities or financial instruments, whose purchase by the government is deemed necessary by the Secretary of the Treasury and the Federal Reserve Chairman, again in order to stabilize the financial marketplace of the U.S. The purchase of the second category of troubled assets must
