Bloomberg News reports that banks' subprime write-downs have hit $500 billion. The last time I checked, that figure was $400 billion. Bloomberg reports that New York University economist Nouriel Roubini forecasts such losses will ultimately total $2 trillion. I wonder if he would revise his estimate upwards.

Recently banks have been taking write-downs for their Auction Rate Securities (ARS). Bloomberg reports about $1.9 billion has been set aside so far to cover ARS losses. It notes that UBS AG (NYSE: UBS) set aside $900 million to cover potential losses and Citigroup, Inc. (NYSE: C) and Wachovia (NYSE: WB) each estimate that their ARS buybacks will cost $500 million.

Write-downs have been going hand in hand with capital raising. But banks and brokers have not been able to raise enough capital to offset the losses. Bloomberg calculates that they've raised "$353 billion of capital to cope with the write-downs. The gap between the losses and capital infusions, which stands at $148 billion, has regularly narrowed to about $80 billion as capital raising follows write-down announcements."

Can banks and brokerages raise another $1.7 trillion to keep up with the write-downs that Roubini forecasts? I sincerely doubt it.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.

While shares of Merrill Lynch & Co. (NYSE: MER) slid nearly 6% on the news of its much larger than expected write-down on subprime loans and CDOs, its significance is larger. The fact that Merrill increased its write-down by $3.4 billion not based on any sort of fundamental change, but based on a decision to use "more conservative assumptions," is indicative of just how much leeway these banks have in deciding how much money they make.

In The Smartest Guys in the Room, the documentary about Enron, the narrator explains that the use of what Enron called market-to-market accounting (although it really wasn't market-to-market -- more like market-to-whatever the hell we feel like) allowed the company to report pretty much whatever earnings it wanted.

It appears that the investment banks are in the same position with their loan portfolios.

According to BreakingViews, "More worrying for Merrill's investors, it reeks of dilettantish risk management. There have been more than enough signs this year that mortgage markets were cratering. And Merrill was arguably in a better position than most of its peers to judge the extent of the wreckage.