We’ve been asking for a while now for a story that would delve into what seems to me the core issue in the financial crisis and the trillions of dollars of taxpayer money spent or lent on bailouts: How much are these toxic assets worth?

Of course, nobody really knows. That’s the whole reason there’s so much fear in the system. So applaud Bloomberg News for trying to get at a figure in a clever manner.

Mark Pittman, an ‘08 Loeb winner whose work we’ve written about several times and whom I did a long interview with here), finds some actual market data out there in the form of auctions of assets from banks seized by the FDIC.

Based on this sample, it’s not pretty. Auctions of non-performing commercial loans have yielded an average thirty-two cents on the dollar. Auctions of other residential and commercial loans brought in an average fifty-six cents on the buck.

Some are worth more, some are worth less. These are averages and it must be said they could be low because they come from already failed banks.

Why does this all matter?

There’s currently a donnybrook between banks holding bad assets and the investors who would buy them from them. The banks are holding out for high prices, because if they sell them for less than they’re marked on their books, they’ll have to take writedowns. That could force them to raise more capital or expose them as insolvent. Of course, the spread differs based on the quality of the loan, but I’ve seen estimates as high as a forty-cent-on-the-dollar difference between what banks want and what investors will pay.

“It’s hard to believe that the really bad stuff that’s causing all the problems are going to be offered for sale,” (economist Bob) Eisenbeis said. “The institutions won’t want to sell them if they get a true price, because their capital would take too much of a hit.”

Investors want to buy on the cheap, of course. That creates a bid-ask spread that’s huge and is the reasoning behind Treasury Secretary Geithner’s Public Private Investment Program. He thinks assets are undervalued and that if the government lends lots of money and protects investors’ downside, they’ll bid up the prices of these assets. Others contend he’s encouraging investors to overbid in what is essentially a backdoor bailout for the banks.

In announcing its loan-sale program last week, the Treasury provided an example of a purchase price of 84 cents on the dollar, with taxpayers putting up 6 cents, investors 6 cents and the FDIC guaranteeing 72 cents in financing.

“Eighty-four cents is just laughable” because the market value for loans is much lower, said Barry Ritholtz, chief executive officer of New York-based FusionIQ, an independent research firm.

The U.S. is structuring the loan purchases to leave the government with most of the risk, while investors stand to gain most of any profit, economist (Joseph) Stiglitz said.

“There’s almost no upside for the taxpayer,” he said. “The government is giving a 110 percent bailout.”

This is also an interesting way to look at it:

Setting up a facility to purchase distressed loans will allow the FDIC to put a bank into “a silent resolution,” said Joshua Rosner, a managing director at investment-research firm Graham Fisher & Co. in New York.

“This is a way to functionally wind down a bank as big as Citi without the world realizing that they’re essentially in resolution,” he said. “The real value of this is a tool to resolve a too-big-to-fail institution.”

But there’s still a ton of junk in the system, much of it held at full value:

Banks have almost $4.7 trillion of mortgages and $3 trillion of other loans that aren’t packaged into bonds, according to the Fed. The vast majority are carried at full value because they don’t need to be written down until they default, according to Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC.

“Just because it’s being held at full value doesn’t mean it’s not bad,” Alpert said.

Bloomberg writes that selling $500 billion of these loans at 32 cents on the dollar would result in a $1 trillion writedown.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.