The author, James Chanos, argues for retaining "mark-to-market" accounting rules. Bank folk have been whining that mark-to-market has ruined them, after they mark their dodgy assets down to market, they find they no longer have the legally required reserves on hand. Chanos says that carrying worthless assets at the purchase price is a way of hiding losses from stupid investments. He favors relaxing the reserve requirement rather than hiding losses.
The reason we require banks to have reserves is so they can pay out withdrawals AFTER a big loan goes bad. If the bank cannot honor a withdrawal, it's toast right then and there. To this end, the reserves have to be liquid, preferable cash. Really solid things like US treasuries might be OK, but unsalable mortgage backed securities are not OK.
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