Debt and equity securities held as "available for trading" are valued on a mark-to-market basis on a quarterly basis. Gain or loss in the securities is reported in the Mark-to-market accounting needs to be reflected in the income statement. When value of the securities fall, firm holding the securities reports a loss. When the value of the securities rise, firm holding the securities reports a gain.
With the value of the securities falling drastically over the past year, banks are writing down the securities on their balance sheet. They are reporting losses. Their balance sheet is shrinking. Shrinking balance sheet is changing their debt/equity ratio.
If the securities which are related to mortgage backed security (MBS) or Asset Backed Securities (ABS - credit card receivable, restaurant receivable), etc are removed from the banks balance sheets, the banks will not have to write down the assets quater over quarter as they have. Government can hold these securities in a "bad bank" structure. Government can hold the securities long-term and off load them when asset prices are reasonable. Due to the ability and intent of government to hold on to the securities till maturity, the accounting will be "at cost" accounting. Banks will benefit. Government will benefit. Citizens will benefit in a long run.
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