You can definitely make some kind of self-igniting phone as long as you warn the buyer. In fact it sounds like a completely reasonable piece of modern art. And you can make a car without brakes but you can't take it on the road. Maybe that could be an analogy for a financial instrument that you couldn't sell as a stock.
There are few things that you can't sell with proper warning labels. And even these toxic packages of bad loans had some value. They didn't pay out anywhere near expectations but they paid out something.
Well using the art bucket to sell it is really really stretching the analogy to try and make the point, and the weakness does show.
An art product isn't going to sell or be sold as widely as a commodity or even a CDO.
And even under the auspices of art people won't let you sell toxic waste.
And Some of those toxic products made 0 money. You may have had some interest roll in from a tranche, but if it lost its value even before it reached market (some CDOs lost value between inception/assembly and final release on the market.)
The money that rolls in is irrelevant, since the net effect is wealth destruction.
Well I was only using art to explain why it might be bought, not why it is possible to sell. Toxic waste is only restricted because it can leak out and harm the area. A bad bond is merely useless. You could sell broken blenders for scrap, for example.
Edit: wait, how is wealth destroyed? I don't see how selling bad bonds would inherently destroy wealth, such as if they cost a fair price of pennies, nor do I understand how overcharging would destroy wealth as opposed to taking wealth. Am I missing something?
What I was saying is that the people who held the bonds may have received some interest but then the bonds went south and they made a net loss.
Also when a bond fails, wealth is destroyed - a bond is a promise of payment, upon which other things are built. If it defaults wealth is destroyed. Which is why having working rating agencies for bonds was and is a big deal.
I ageee and am not saying selling bad bonds Is inherently wealth destructive.
Anyway- I understand you are describing a way these things could be sold, is all.
There are few things that you can't sell with proper warning labels. And even these toxic packages of bad loans had some value. They didn't pay out anywhere near expectations but they paid out something.