The Comprehensive Guide to

Passive Income Investing


Learn the secrets of how Paul Tracy generates over $XXX,XXX per month in passive income!

How to Become Financially Independent Through Passive Income Investing

What are Troubled Assets?

Troubled assets are assets that have experienced a significant drop in value and lack an active market where they can be sold. Troubled assets are also known as toxic assets.

How Do Troubled Assets Work?

The most famous examples of troubled assets are subprime mortgages. After the real estate market collapsed in 2007-2008, subprime mortgages lost much of their value and became almost impossible to sell. Because the market for subprime mortgages was illiquid, any owner of a subprime mortgages had to sell them at a fire-sale price if it was necessary to unload them. Banks, insurance companies and hedge funds had a relatively high number of these troubled assets on their balance sheets, and once their value plummeted, many of these firms found that they were insolvent.

Why Do Troubled Assets Matter?

The U.S. Department of the Treasury created the Troubled Asset Relief Program (TARP) in 2009 to purchase or insure up to $700 billion of troubled real estate assets owned by banks and other private financial institutions. TARP mainly targeted a real estate derivative called a 'collateralized debt obligation,' or CDO, which had enjoyed active trading until widespread foreclosures caused the secondary market for CDOs to dry up. By purchasing their troubled assets, TARP allowed banks to stabilize their balance sheets, avoid further losses and begin lending again.

Ask an Expert about Troubled Assets

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Troubled Assets.

Be the first to ask a question

If you have a question about Troubled Assets, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.