Most banks are sitting on losses they are not disclosing because they don't have to - they only time they are forced to truly mark a loss is when they truly sell an asset at a loss, everything else has wide discretion... thus yes, they are in varying degrees of insolvency, or at least in much worse shape than they report. Plus as long as they hold securitized assets predicated on this, or similar collateral, they can mark those assets at almost any level they feel like (since the FASB allows non-liquid securities to be marked at the discretion of the holders), which has the effect of creating an average value higher than it should be given the declining loans. Does the fed get this? no - they are doing the same thing with the bank assets they hold.
Gimleteye never cries wolf!