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"Without MTM the government could allow banks to share real estate with the Chinese at inflated prices and let the market sort it out. Think of it as a Goldman Sachs program run by Geithner and Co. “Plump and dump” on a grand scale."

That's what happened in after the '80s boom, when the Japanese bought up all of the overpriced US real estate and had it collapse on them. Much of your other line of questioning requires a crystal ball, such of which I do not have.

"I am a little confused by the shift in a chart based on commercial property values to the lower capitalization of banks."

The banks shrunk because they were never forced to realize their loses, hence on paper they grew their accounting earnings, but economically and in reality (which counts for global standing after some time), they simply mired in their NPAs.