Plain vanilla question….plain vanilla answer
Lifted directly from comments as a plain vanilla answer to some of the confusion on value of certain derivatives.
The problem is that mortgage derived instruments slice the actual mortgages too finely for proper evaluation, collection or even renegotiation. The solution seems to be having the government buy everything up at a fire sale and then, with 100% ownership, try to piece everything back together into performing mortgages and non-performing mortgages.
I’m not sure I like the idea of the government owning 100% of all mortgages, or at least those that have been sliced and diced, but this may be our only hope of gluing them back together.