The banks are insolvent. Mortgages and auto loans and credit cards are all going bust. There is nothing panic driven about the depressed value of those assets. Studies they've done on CDOs show that they are worth even less than what the pessimists projected (30 cents on the dollar for super senior tranches and 5 cents for mezzanine).

If this were a matter of illiquidity, the massive liquidity the Fed has injected into the system in the last six months would have ended the crisis.

here's more: http://hedgedbet.blogspot.com/2009/03/friedman-toxic-assets-...