Thanks for a short and lucid explanation, it all makes sense now. I know the banks are really getting hosed. I bought my house for %15 of what was owed, at auction..
It's interesting that regulators - our government - are allowing banks to basically space out the housing loan losses without any real disclosure to investors - if home loans were marked to market like securities need to be, we would see a total collapse of the banking industry as the offset to those book entries is a direct hit to capital.
Also, all of us who have done and are doing the right thing, financially speaking, are paying a huge price (specifically senior citizens) with any savings subject to such low market rates - the money being made by banks and wall street is basically our money - money that we've lost, money that the FRB is basically using to subsidize wall street.