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There's a fascinating article in the NY Times regarding the value of all of these bad bank assets out there and whether the government will ever be able to properly price them:

The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor's, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

The bond analyzed by S.& P. is just one of thousands that the government might buy or guarantee should it go forward with setting up a "bad bank" that would acquire $1 trillion or more of toxic assets from banks.

Those bolded parts are the entire crux of this thing: these banks are trying to fudge the numbers while they hope the problem goes away. This quote assumes that they're just dumb, but these bankers know exactly what they've got and know that they're insolvent:

"To date, the banks have stuck their heads in the sand," said Lynn E. Turner, a former chief accountant for the Securities and Exchange Commission, "and demanded that they be paid the price of good apples for bad apples."

We're doing exactly what Japan did: deny deny deny and hope the problem goes away. It ain't going away.

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