Comment Re:Quick lesson in business math (Score 1) 466
Seriously, "20 cents on the dollar" is a major understatement. Due to arbitrage, those assets are never going to go lower than any reasonable estimate of what their real maturity value is. They will only get bid lower if there are real expectations that there will be more delinquencies.
The other reason they MUST make banks recognize assets at market value is because of leverage and deposits. Leverage, because their creditors need to have the right to force a margin call as per the contract terms that guarantee a certain profit (the large banks who pushed for the rule change had no problems issuing margin calls on smaller lenders and mortgage companies!). Deposits, because those banks have deposits guaranteed by the U.S. taxpayer that are backed by these securities. Why do you think the loss ratios have been so insanely high on many of the banks that have been seized by the FDIC this year? In other words, how is the FDIC supposed to know when a bank is insolvent if its assets aren't marked to market? In some cases, insolvent banks had overvalued their assets by as much as 30%. This has completely depleted the DIF, and our country is almost bankrupt now (it would have already defaulted if it hadn't raised the debt limit two weeks ago!), making it more difficult to guarantee deposits.
No, this nonsense about the credit markets is just what the banks sold you. Some of those banks were leveraged so far that a 5-10% decline in asset value would (and did) make them insolvent. And considering delinquency rates are far above 10% in some cases, it's not surprising that fair value on those assets would ruin them.