When I was in college the Ag Crisis in the heartland was raging.  My parents had purchased a farm for about $1,000 per acre and taken a 30 year mortgage out in 1981.. which will expire this next year.

They came to visit me in school and basically the banker had written the value of the land down to about $650 an acre in one fallen swoop erasing all the equity in our operation.  For many farming operations.. they did not survive that "mark to market.."  Granted Cash flow was a problem as Cash Receipts were plummeting at the time.

Today land across the road has sold for almost 4 times the amount as the banker recognized it then in 1985...  This of course is of little consequence to those who were forced out at the time..including my Uncle.. fortunately for us we survived.

Today the 20 city composite Case-Schiller Home price index is back down to levels not seen since 2003 after peaking in July of 2006.  Currently we are down almost 30% from the absolute high in the index after already moving up about 5% from the low printed last April.  Furthermore some cities such as Dallas (1.4%), Denver (0.5%), San Diego (0.4%) and San Francisco (1.0%) are logging year over year increases in Housing values.

http://pr-usa.net/index.php?option=com_content&task=view&id=322936&Itemid=96

Given the incentive to move existing housing before continuing new construction these cities should see this inventory.. (granted Vegas.. down 24.5% from last year.. may take awhile..  "Want to buy a house in Vegas?  Come on it's VEGAS BABY!!") cleaned up over time.

During the S&L Crisis of the late 1980's the government made a profit on many of the assets it purchased by being able to hold them until the markets recovered.. no doubt this will occur again.

As noted the Fed along with the Treasury have purchased a significant amount of Mortgage Backed Security paper at fire sale values.  This paper will add some information on the program..

http://www.stanford.edu/~johntayl/ST%20Paper%20-%20December%2020.pdf

Granted the conclusions at the end are not brightly sunny as to the effectiveness of the program but the paper does acknowledge that "a general decline in risks" during the period studied has occured along with "Government actions to lower interest rates."

Again as noted before the Fed has reported significant profits to the tune of $46 Billion dollars on the purchases of distressed assets in 2009.

http://www.huffingtonpost.com/2010/01/12/federal-reserves-profit-h_n_419835.html

Evidently even trash... can be profitable.

Will every single asset turn a profit?  Probably not..  However, as has been proven.. Housing does indeed NOT go up forever... Consequently we can also expect that neither does it go DOWN forever.

Again the economy reportedly expanded at a 5.7% clip for the fourth quarter of 2009.. this is not a bearish signal..  That's all I'm saying.