Poisonous Coinage

Tracing the evolution of the term "toxic loan"

As the country tries to escape its economic doldrums, there’s been a lot of talk about how banks made “toxic loans” that exposed them and others to huge losses. It’s a very descriptive phrase that allows the biologic and economic worlds to collide.

The phrase “toxic loan” may have first appeared in 1992, as a headline on a series of articles by the American Banker. How prescient!

Except that these were loans by banks to clean up environmentally damaged areas—places poisoned by toxics.

“Toxic loan” next appears in 2000, according to Nexis, in a Cleveland Plain Dealer article about predatory lending, defined as “a growing practice among some mortgage and home-equity loan companies of seeking low-income borrowers and charging them unfairly high fees and interest.” That gets a little closer to the way the phrase is used today. But the practice then was “toxic” only to the borrowers, who couldn’t maintain the payments, and not to the lenders, who simply resold the foreclosed homes in a booming real estate market and recouped all their money.

But, by its nature, a toxin spreads its poison, and now both the borrowers and the banks are dropping like flies.

In a similar way, the use of the word “toxin” itself has worked its poison into the lexicon. “Toxic,” meaning poisonous, has existed for several hundred years and is almost always used as an adjective. Most people will use “toxin” as the noun. But most people will be wrong, unless they are speaking specifically of an animal or plant poison.

“Toxin” was first used in the late 1800s, when medical studies of bacteria were gaining currency. Every major dictionary defines a “toxin” as a poisonous microorganism produced by a living thing. By those dictionaries’ lights, chemical poisons like PCBs or melamine are “toxics,” but not “toxins.”

It sounds funny, though correct, to use “toxic” as a noun, as it was in the second paragraph and above. All “toxins” are “toxic,” but not all “toxics” are “toxins,” at least according to dictionaries not yet poisoned by common usage.

So while it’s OK to say that the bad loans were “toxic” to banks, it’s really not OK to say that the loans were “toxins” poisoning the banking system, as the fourth paragraph does. Well, since people were making the loans, one might argue that the loans were spread by a human poison … but don’t tell that to your banker.

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Merrill Perlman managed copy desks across the newsroom at The New York Times, where she worked for 25 years. Follow her on Twitter at @meperl.