[dxhdr]

"their underlying value is going up as well"

How can you tell? These are illiquid bonds that have no market. The Fed could say they're worth anything and there's no way to prove or disprove it. The only way to know is to offer them for sale and obviously that's the opposite to what the Fed is doing.

[jessedhillon]

In the case where those toxic assets are mortgage-backed securities, the underlying is a house -- so we can tell by observing the housing market.

[jonnathanson]

Many of the mortgage-backed securities were so byzantine, so many orders of derivatives removed from the underlying houses, as to be nearly impossible to tie directly to housing. But that's a side point.

The real point is that a lot of the mortgages originally packaged into those securities no longer exist, and hell, a fair number of those houses probably no longer exist. Yes, there's a huge supply of housing once again, and real estate is doing well across the country. But mortgages represent specific financial obligations, made in specific slices of time, between specific parties. The mortgages themselves are not fungible, and never could have been. They were bundled into individualized tranches, whose bases have probably evaporated by now. (We must keep in mind that the troublesome MBSes circa 2007-8 comprised subprime mortgages, and most of those subprimes went belly up).