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Q: Nor was there any more clarity from the United States on how it plans to
clean up banks' toxic assets, which many say is essential to get the world
economy moving again. Please explain “toxic assets” in detail.
With the economy “hitting the skids” in recent times there has been a lot
of talk about “toxic debt”.
Debt is something which you owe and if something is toxic – well – that’s
not a good thing because that means it is sick, or poisonous, capable of causing
great harm and what’s worse, potentially able to spread to other areas.
According to the UK’s Telegraph publication, toxic debt refers to the
“various asset classes hard hit by the financial crisis, such as sub-prime
mortgages”.
The use of the word "toxic" became popular as anyone, any bank or
organization holding “subprime mortages or related assets have become sick
financially. The financial sickness spread like chicken flu or sars and it
spread quickly.
As a result people and banks asset values dropped significantly, banks
quickly had to try and pay back money that was lent, they realized they had also
invested money into bad areas and very soon they didn’t have enough credit to
make further loans and then businesses couldn’t borrow any money to run their
companies and wammo – that is a simplified explanation but it works for now.
Why was China lucky – because its’ banking system had cleared up many toxic
or bad loans several years earlier and the government had also required them to
have enough reserves in supply to cover any emergency if customers were to
quickly start pulling their money.
How much "toxic debt" is there?
The Telegraph says “Nobody really knows. Sandy Chen, banks analyst at
Panmure Gordon, has estimated there are about $2,000bn of US sub-prime mortgages
and another $1,000bn of "Alt-A or near-prime".
The International Monetary Fund in April estimated that the US sub-prime
meltdown will cost banks and other institutions $945bn.
Vocabulary
“hitting the skids” – when a car skids it loses control, if something “hits
the skids” then it loses control. |
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发表于 2016-7-9 23:59:40