Otherwise said, “delay and pray.” Unfortunately, there is no real way of incentivizing banks to sell or move assets at a loss because it erodes their capital base and affects their capital requirements (not to mention having a down-ward ripple effect on the rest of their assets).
Therefore, banks are still not lending much. Since their cost of capital is minimal, the profits they are making go straight to the bottom line, serving to rebuild their capital base little by little. (Today, they have 300-400 bps of profit on a 50-60% LTV, where it used to be 30-40 bps of spread at 75-95% LTV.) Write-downs are occurring slowly as offsets to their quarterly gains.
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