In the current crisis, where there is no real market, the rule has forced massive write-downs, which have precipitated solvency and counter-party credit concerns that have caused further write-downs.
"With its high leverage ratio to tangible common equity, we believe Lehman needs to raise substantial capital regardless of market conditions in order to take its needed write-downs, " Einhorn said in an email Tuesday.
The frozen market for mortgage-backed securities was triggering massive write-downs, i.e. destroying capital, even while the underlying mortgages were still performing.