Toxie, The World's Most Unlikely Pet

This week, Benzinga spoke with NPR's David Kestenbaum and Chana Joffe-Walt, who told an interesting story about the life of an unlikely pet: Toxie.

“Toxie was our pet toxic asset at Planet Money,” Joffe-Walt revealed. She said that no one really understood what toxic assets were even though they had received a ton of press during the financial crisis.

“So we bought a slice of a big mortgage bond, and listeners named it Toxie,” she said. “It lasted for eight months and it died in late September.”

More specifically, David Kestenbaum said that Toxie was a residential mortgaged backed security, which was cut up and put into CDOs (collateralized debt obligations).

“She was still complicated,” he said. “The paperwork was 300 pages long.”

“By the time we're buying her,” Kestenbaum continues, “she's in bad shape and has had many owners. She had a difficult childhood at this point. She was born in 2005, we bought her in 2009. She is not dead, but very, very sick.”

Kestenbaum said that he was able to purchase the asset for 99% off the original price of $75,000.

The price was originally worth $75,000, but it was discounted to $1,000!

“When we looked at this particular asset, the idea was that she was sick, but that it would last for a certain amount of time,” said Joffe-Walt. “About half the people were still making mortgage payments. It would last for at least 8, 9, 10 months. And if it lasted long enough, soon we'd be getting small checks for it. There was the potential to at least double our money.”

Unfortunately, there were several complications along the way. “And there were several mortgages in our asset that were modified,” she said. “Because we were at the back of the line of investors, this didn't help us.”

Adds Kestenbaum, “There were 2,000 mortgages inside her, and when people make their payments that goes into a pot of money, and that pot of money gets paid out to investors – but it is not like everyone gets paid equally.”

Eventually, Joffe-Walt said that they attempted to track down some of the borrowers that were contributing to Toxie. “We met an 82-year-old man who just walked away because he wasn't worried about his credit score,” she said. “His house was worth less than half of what he bought it for.”

Finally, when asked if it would have been possible to insure Toxie or apply a credit default swap, Kestenbaum said, “We actually joked that our editor would do that, but I don't think they do custom deals for a $1000 toxic asset.”

You can listen to the full interview right here on Benzinga.com: The Story of Toxie

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