coach d: yes. absolutely.
The problem with toxic assets is the name--toxic. It is a label that is applied to disguise the fact that they represent activities/endeavors/transactions that are not economically viable.
The lack of regulation exists in order that the values may be fudged, to make them seem better, when they're not. Essentially, such assets (and now bonds) were fictionally valued, as were their derivatives, to make them seem economically viable.
Then, money was made really cheap so that institutions, etc. could go out and buy these things--that, AND the government went and bought a whole bunch of it, to "lead the way".
Meanwhile, the activity/endeavor/transaction was still not economically viable, even when accounting rules were changed. Accounting is NOT economics.
In the intervening years, even though TARP assets have been sold, this type of activity has not only continued, it has increased tremendously--and of course you are correct in pointing out that they are off-balance-sheet items.
Nothing worthwhile net is being added to civilization by these activities; they do not add more than they cost, which costs appear as dilution. They are not worth their fictitious valuations. To make it SEEM like they are, money has been made cheap, and rules changed, and we got asset inflation, which has also affected equities and bonds.
One cannot merely stand still, or one will be diluted to death.
This is why I find fundamentals important. While technicals describe the aggregate behavior of market participants (the subject of the market), fundamentals can describe the economic qualities of business endeavor (the object of the market). Both can be important to use, at various points in cycle timing, IMO.