It seems like every quarter the banks have to write down more than they "expected", so there's still taking a hit on their previous investment decisions. That would argue that they haven't written down the stuff too much yet.
When, in some areas, 52% of home sales are houses that have been foreclosed -
http://www.calculate...es-now-52-of.html - the market isn't normal. That decimates the value of good homes with good mortgages. So, even if a bank doesn't have sub-prime mortgages, and even if they did their job properly, they can still take a tremendous hit if the market in their area has been hit.
Some expect an additional ~ 30% fall in home prices this year -
http://www.calculate...ome-builders.html
There doesn't seem to be an incentive in Geithner's plan for the banks to actually clean up their books. They can't get face value for their loans, because the market as a whole is still falling in most places, and their incentive is to dump stuff that is worthless for high prices, but who would buy it? Without some stick behind the plan (which I understand the "stress test" is supposed to be, but we'll see), it doesn't look like it's going to work.
Time will tell, though.
Cheers,
Scott.