But the reason the markets are down so much more than the original loss, is they have to pay much, much more on the liability side these days. The main reason is their own scramble to get out of the way of the losses still unallocated - the solution to that is to allocate them, RTC fashion for example - and the loss of confidence in their skill and judgment because of the whole crisis to date. Also a simple fear of unknowns (CDS, derivatives, etc).
How much the collateral is eventually worth is not the issue governing whether a given bank can survive, at this time. What rate it has to pay to borrow money to carry its assets, is. Drive that too high and any private financial institution in history could be made to fail, no matter what it holds.
Sorry, I’m too drunk and tired to respond the way I want to at the moment.
Tomorrow I’ll explain why the derivatives are a convergent series (converging towards zero) and not a divergent series, to explain my previous response.
Nice chatting with you. Enjoyed it. Seriously!