The hosts and crew at NPR's Planet Money pooled their money and purchased $1000 worth of toxic assets. Not because they were expecting to make a killing, but because they thought it would be a good way to learn more about toxic assets and what they mean to investors, banks, and mortgage holders. (Here are some frequently asked questions about toxic assets.)
The NPR folks bought a portion of a mortgage bond that had sold for $2.7 million a couple of years ago. NPR's $1000 got them a 1/36th share in the bond. So, in other words, they got a share that was worth $75,000 when the bond was sold for $2.7 million. That's 1.3 cents on the dollar.
Why did the bond's value drop so much? Because many of the mortgages, mainly in California, Arizona, and Florida, are "troubled." The values of the houses are worth less than the money owed on the mortgages. Half people are behind on their mortgage payments. Fifteen percent of the homes are in foreclosure. When those foreclosed homes get sold at a loss, the bond shrinks.
But even so, the investors from NPR have received money each month because many of the mortgage holders are still making payments on time. Their first check was for $141. To date, they've gotten $332. As the NPR co-host notes, "If we keep getting checks [in this amount] till Thanksgiving, we will double our money." They asked their broker what was the worst thing that could happen. His answer: "Next month they sell all the houses and you get stuck with nothing."
On this page, you can track the health of NPR's toxic asset.
Here's the seven-and-a-half-minute audio segment | Here's a transcript of the segment
