Your line-of-thought basically the accounting equivalent of answering a specific felony charge by pointing to the declaration of independence. In some sense, you are right, so far the spirit of GAAP is concerned - but in other, more concrete sense, you are pitifully ill equip for an informed discussion. No, I haven't lived under a rock. In fact, I traded CDS and bank debts through out the entire episode and saw how all of this went down from a fairly good vantage point. And yes, I'd be happy to pay you if you can find the actual FASB standard that they've violated. Quote me a price. But of course, you are just being an internet genius - you don't actually know enough accounting to even know where to look;
Banks accounting is hyper-cooked. This is a plain fact. If you don't believe me, OK, go ahead buy bank stocks. Even more, get all the loans you can, to buy bank stocks. Have some (personal) bankruptcy forms handy, tough.
Why do you believe the opposite of fraud is a great investment? Can't I believe that the books are not legally phony, but banks at the same time are a bad investment? Oh that's right - you failed basic logic...
It doesn't matter how they classify it. If the external accountant determines that an asset is permanently damaged in price, it is either going straight to the income statement or to other comprehensive income. Banks have no choice in this decision either. So even though it may be "held to maturity", it can still have unrealized losses recognized far before the maturity date.
It's not easy to classify a security as hold-to-maturity and thus not subject to mark-to-market accounting. The vast majority of "toxic" assets are not hold-to-maturity on the bank's books. The problem is valuation. These things aren't priced. So they end up marking-to-(really bad)-model; But there isn't anything legally wrong with that; it's specifically allowed and moreoever, necessary (seriously, what else are you going to do? market it to cost? which is even worse).
Banks are marking-to-improved-executive-compensation. And yes, most mortgages aren't priced, there is no, and never was, a real market. The problem is that they marked mortgages even much higher than its cost (loans given). If this marking was not real during the real-state bubble, much less now with falling home prices and the credit crunch.
... So the two billion or so Mortgage Back Securities I see my bloomberg right now with 1/2 bps of bid/ask spread that I can hit immediately aren't real? Nice.... dude - you are a complete moron
And in case you think I'm joking about the blp part, here's the MBS trading screen right here. It's a two-fucking-way market. If someone's marking it higher, you can bet someone like me will hit it.
Oh good - so at least you retract the statements that mortgages don't have values. Now, here's a small lesson for you - mortgage CDOs are marked to model, but models are caliberated to market factors (it turns out that the deltas that these models produced were pretty unrealistic in a bad market, which in turn caused all these assets to drop in price WAAAY faster than traders thought they could). If you find one instance of a bank trader mismarking on purpose or fudging with the model input, he's going to jail. (and btw, both buy and sale side have these models; if the sale side guys are fudging it, we'd know). Again, you don't know what you are talking about. You should stop now. You are embarrassing yourself. (not that you will, judging from your posting history).