Not all toxic assets will have to be written off. They don't neccesarily represent defaulted mortgages, they may be long term mortgage backed securities or CDOs of currently low or uncertain value. They affect balance sheets in the short term, and the banks want to get rid of them, but their value may increase as liquidity improves and property prices rise. This is why a goverment guarantee of toxic assets doesn't neccessarily mean a loss to the taxpayer of that amount.
Very true, Alex, but of course you have to find the bottom of the market first - that only occurs when you have liquidity, and we have not yet reached that point. You don't generally see price rises in illiquid markets that are in distress.
Hopefully not too long, but I stand by my opinion of late 2009 / early 2010 that I stated a few months' ago on this forum.