Dead Souls and Risky Assets

In Gogol's Dead Souls a man goes around the countryside buying up dead serfs. As there was only a census every ten years, these serfs would count as property on people's tax rolls causing their former masters years of tax obligations. Quite why this man was buying the dead souls remains a bit of a mystery - Gogol went mad and died before the completion of the work - but presumably he was going to use them for collateral or to advance his rank some how.

But a funny thing happens as he tries to buy the souls. He'd offer $500 for Mischa who passed away the prior year. But after he makes the offer, Mischa's very much alive master would say "$500 for Mischa! You have to be crazy. Mischa used to fix me the finest cup of tea, and never a drunk. Always on time and respectable. Mischa should be worth $10,000 at the least."

I suspect something similar is going to happen when these private companies try to buy the risky assets from the financial institutions currently holding them. The auction system put in place is meant to ameliorate this "Dead Souls" problem, but the selection of assets is going to present the same issue. For example, Citibank knows it has some real garbage loans and it dumps these on the market. Then it starts looking at other tranches of mortgage-backed securities and it'll do some guess work. "If we put this tranche on the market, how much do you think we'll get for it? Well, if there's profitability at that level, why would we sell?" Essentially, "Yes, but my Mischa is worth so much more."

I don't have a better answer and think that the auction system developed is a good way around the Dead Souls issue. But I still think that there's going to be systemic inaction and further ossification of credit lines because of an even greater inability to comfortably price debt.