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Editor's Note: the author of this [forum moderate Seahorse] is a practicing bankruptcy attorney in the American South:



If my small cabin on the ship is any gauge of how things are going, then,

we still haven't bottomed in the housing market, meaning the water is still

rushing in - we are still sinking.  The cold water around our waist line is

definitely causing "shrinkage" of the old economic muscle.  Keep in mind,

all I can report are the residential side of things, but they are bad enough

and getting worse, but I do know we hit a second iceberg, because I heard

the hit.  On the ongoing residential bust, I always wondered why banks

weren't simply willing to pull the trigger and get rid of the foreclosed homes

for whatever they could get.  Well, its not that simple, bc in the end, they

don't have enough capital to take the losses, so they have to hold them

and claim a false value on the defaulted properties hoping they can sell

them later at the price they have in the properties. This is banking Enron

style.   Why must they show them on their books with false inflated values?

Keep in mind the assets and liabilities of a bank.  Deposits are liabilities that

in addition they have to pay interest on.  Loans are considered assets, as

long as they are good.  Basically, the assets and liabilities of a bank must

maintain a certain proportion, otherwise, they are bankrupt.  So, when a

bank forecloses, they take the house back, replacing the asset value of the

good loan with the asset value of the home they are holding - if they take

a loss on the home or mark it down to its true deflated value, it reduces

their assets.   The problem is, with this housing crisis and so many houses

in default, the banks cannot possibly take the losses or mark the homes

they hold down to their true value.  If the banks told the truth and wrote

the value of these assets down or sold them for less than owed, the banks

would effectively bankrupt themselves.  Thus, out of economic necessity,

the banks do not mark the value of the houses down.  Even though they

show these homes as an asset on their books, they are really a liability

because the bank has to maintain insurance on them and pay taxes. Ouch!

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