Word: mark-to-market
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...these potential losses are based on the value that Citi is putting on its loans. And Citi has no obligation to write down all of the loans on its books. In fact, it recently said that it was going to stop taking so-called mark-to-market losses on an additional $80 billion in assets of its loan portfolio. So even if the value of its loans continues to fall, it may not have to take a hit to its equity. And as long as most of Citi's borrowers keep paying, as most are, Citi will be just fine...
...Lastly, the government could make some regulatory changes and hope for the best. First of all, get rid of mark-to-market accounting. Some observers say it doesn't make sense for loans that are performing, and the banks have no intention of selling anyway...
...consequences, however, to this new round of intervention. As part of finalizing the details of the government's second stimulus package, Aso is also calling for changes to accounting rules, including a relaxation of capital adequacy requirements for banks and a suspension of the golden accounting rule of mark-to-market. Credit Suisse's Ina warns that fiddling with mark-to-market accounting (in which a bank's assets are assessed at market value) could have an affect on banks' financial earnings by "obscuring the realities." He warns that changing the current standard might "provide more room to manipulate earnings...