What is the underlying value of the assets causing the financial crisis? The argument about this could define whether banks fail, or, return to profitability.
Many of the assets in question are mortgages issued to borrowers with poor credit to buy overvalues properties. The mortgages are backed by the properites, but the value of the properties has collapsed. It is doubtful that the properties will recover to the levels they were at at any time in the near future, but what are they worth now?
No one really knows the answer to that question, but clearly they have some value, if only the value of the land. In some parts of the country, real estate values have dropped tremendously, but, clearly there is some point, and there are some indications already, when the drop in price creates demand.
So, if the prices start to stabilize, and new mortgages are written, the true losses at our financial institutions can be determined. I don't see how the losses can be any greater than the real declines in the underlying assets, plus some carrying costs.
How much have these assets been discounted in the investment world? If they have been discounted too much, we may see some institutions looking much better, fairly soon. If they have been discounted too little things will get worse.
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