I read on the news that the Royal Bank of Scotland proposes to sell off part of its business, including much of its toxic debt. Will someone please explain toxic debt - how is it different from any other debt and why on earth should anyone consider buying it?
"Toxic" debt has become shorthand for the various asset classes hard hit by the financial crisis, such as sub-prime mortgages � the original "toxic" asset. The word "toxic" caught on because these assets have proved financially ruinous. They have seen their valuations cut and buyer demand dry up. The holders of the debt have in many cases fallen into a loss and been forced to raise emergency capital. The worst hit UK lender so far has been Royal Bank of Scotland, which has taken �5.9bn of writedowns and has had to raise �12bn from shareholders. BTW: I found this answer at hedge fund FAQ dot com http://www.hedgefundfaq.com/answer.php?q=what- is-toxic-debt
Thank you ukfinanceguy for your reply and the link explaining toxic debts. All these banking problems and 'bail-outs' have opened a lot of people's eyes including mine! But it still escapes me how RBS, or any other business, can expect to sell toxic debts. I can't imagine why anyone would buy them.
The banks and credit card companies are also increasingly selling to collection agencies debts which at one time they would have either persevered with or written off. They may only receive a very small amount of the debt but the agency then continuously makes 'contact' with the debtor until the debt is repaid. Construe 'contact' as you wish.
This all goes to show what a mess we are in. I wonder what would happen if there was a change of government which many people seem to be 'howling' for. Somehow I doubt if that would produce a helpful remedy, but the banking system certainly appears to need much stricter control. Thanks everyone for your contributions to this question.