The real problem with toxic assets isn't that "nobody knows how to value them:"

The real problem is that everybody knows how to value them, but nobody can say it out loud. But I have the answer!

They are worth precisely $0.00.

Obviously, Versailes is completely untrustworthy on this point, so why not ask the Chinese? After all, it's their widows and orphans who bought our paper. From James Fallows' interview with Gao Xiqing in the Atlantic:

f you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.

I was predicting this many years ago. In 1999 or 2000, I gave a talk to the State Council [China’s main ruling body], with Premier Zhu Rongji. They wanted me to explain about capital markets and how they worked. These were all ministers and mostly not from a financial background. So I wondered, How do I explain derivatives?, and I used the model of mirrors.

First of all, you have this book to sell. [He picks up a leather-bound book.] This is worth something, because of all the labor and so on you put in it. But then someone says, “I don’t have to sell the book itself! I have a mirror, and I can sell the mirror image of the book!” Okay. That’s a stock certificate. And then someone else says, “I have another mirror—I can sell a mirror image of that mirror.” Derivatives. That’s fine too, for a while. Then you have 10,000 mirrors, and the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted. And all the rest will go.

Fascinating metaphor because Versailles contains the famous Hall of Mirrors (which you see on our masthead).

When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down.

I think we should do an overhaul and say, “Let’s get rid of 90 percent of the derivatives.” Of course, that’s going to be very unpopular, because many people will lose jobs.

Of course, on one level Gao Xiqing is way, way too innocent and naive. It's not about people losing jobs at all. It's about how Versailles took the trust that was our social capital and

So, the question that's uppermost on the minds of our most powerful Villagers isn't one of "asset valuation" at all. In fact, the question is two-fold:

1. How can we get the American people to pay a trillion dollars -- make that another trillion diollars --for worthless crap? (After all, we've already done it once!) Enter "the grand bargain"!

2. How can we maintain our power, position, prestige, and perks?

Of the two questions, #2 is, to Versailles, by far the more important.

In fact, if they can't extort enough from us in #1, they will, with mild regret, allow the [our] economy to collaose completely, rather than surrender any of their "entitlements." Dogs, redecorating the manger....

NOTE I mean, come on. If there's one thing we've learned over the last years, is that Versailes is filled with people are who incredibly greedy and incredibly stupid. If the toxic assets can't find any buyers at all... Then they must be really, really toxic. They are, in fact, valued accurately. That's why nobody will buy them.