Subprime mortgages and credit liquidity crunch?

Each of the major investment banks appear to have burned serious money on subprime mortgages in the US. We in Australia are hearing of additional tranches of discount interest mortgages resetting to normal interest rates this year and next. Have the iBanks who bought these already written these exposures down (in the most recent reporting season) or will the write downs of these next few tranches only be revealed over the next year plus?

The whole thing is pretty complex since the financial wizards got very creative in packaging things together in complex things like CDOs and SIVs. Apparently even a lot of sophisticated investors with finance degrees didn't really understand these things very well, so I'm not going to pretend that I completely understand them, but here's the sense I have...

Most of those mortgages are not held individually as was common in the past. They've been sliced and diced a million ways into complex packages with names like CDOs and SIVs. In most cases, the banks that wrote the mortgages no longer own them. (In my opinion, that was a lot of the problem . If the banks that wrote the loans had to keep them, they'd have been a lot more careful in who they lent money to, but since they sold them off right away, they didn't really care about the risk.)

My understanding is that a lot of the huge writedowns we've seen from the big banks like Citigroup are not due to individual mortgages going into foreclosure but due to the value of the CDOs and SIVs plummeting because no one wants them any more now that they know more about what they really are. A lot of that is anticipation of how many subprime mortgages will eventually go into foreclosure (or have to be substantially modified). So although there are many more foreclosures ahead of us, I think most of that has already been factored in to the writedowns we've already seen. There might be a few banks that didn't really fully expose what they've lost yet and will have to write down more, but I suspect that most of them, especially the ones with new CEOs (like Citi and Merrill Lynch) have probably cleared the decks. Time will tell, but I suspect that a week or so was probably the absolute best time to buy bank stocks, but even now is still a very good time. The prices have risen a lot in the last week so I wouldn't be too surprised to see them drop back a little, but I think that a year or two from now, they'll be substantially higher.