"The Fall of the Toxic-Assets Plan"

I have the same worries, so I would like to hear why we shouldn't be concerned that banks are holding overvalued assets on their balance sheets. What's the counterargument to this?:

The Fall of the Toxic-Assets Plan,  by Lucian Bebchuk, Real Time Economics: The plan for buying troubled assets — which was earlier announced as the central element of the administration’s financial stability plan — has been recently curtailed drastically. The Treasury and the FDIC have attributed this development to banks’ new ability to raise capital through stock sales without having to sell toxic assets. ...

What happened? Banks’ balance sheets do remain clogged with toxic assets, which are still difficult to value. But the willingness of banks to sell toxic assets ... has been killed by decisions of accounting authorities and banking regulators. ...

Armed with ample government funding, the private managers running funds set under the program would be expected to offer fair value for banks’ assets. Indeed, because the government’s ... non-recourse financing, many have expressed worries that such fund managers would have incentives to pay even more than fair value... The problem, however, is that banks now have strong incentives to avoid selling toxic assets at any price below face value even when the price fully reflects fair value.

A month after the PPIP program was announced, under pressure from banks and Congress, the U.S. Financial Accounting Standards Board watered down accounting rules and made it easier for banks not to mark down the value of toxic assets. For many toxic assets..., banks may avoid recognizing the loss as long as they don’t sell the assets. ...

In another blow to banks’ potential willingness to sell toxic assets,... bank supervisors conducting stress tests ... explicitly didn’t take into account the decline in the economic value of toxic loans and securities that mature after 2010 and that the banks won’t have to recognize in financial statements until then.

Together, the policies adopted by accounting and banking authorities strongly discourage banks from selling any toxic assets maturing after 2010 at prices that fairly reflect their lowered value. ... [S]elling would require recognizing losses and might result in the regulators’ requiring the bank to raise additional capital...

While the market for banks’ toxic assets will remain largely shut down, we are going to get a sense of their value when the FDIC auctions off later this summer the toxic assets held by failed banks taken over by the FDIC. If these auctions produce substantial discounts to face value, they should ring the alarm bells. ... In the meantime, it must be recognized that the curtailing of the PIPP program doesn’t imply that the toxic assets problem has largely gone away; it has been merely swept under the carpet.