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A generic term for assets that expose their holders to losses that are very large and difficult to quantify. They include mortgage backed securities (MBS), collateralized debt obligations and credit default swaps. Repayment difficulties encountered by large numbers of U.S. holders of subprime mortgages led in 2007 and 2008 to large losses by banks in a number of countries on the credit derivatives based on them. Financial institutions holding such assets found themselves unable to borrow from their peers as lenders feared borrowers might be unable to repay. This triggered the financial crisis and recession that began in 2008.
See also: TARP, TED Spread