>>>If company A owns a number of shares of company B - how do these shares count in their balance sheet? At what price?
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>>In this particular case company A will have to report these shares as assets, under 'Long Term Investments' in the balance sheet.
>>There are different methods to evaluate this kind of assets, well regulated, by the way. Most common way, currently, is mark-to-market valuation when company adjusts this asset value on quarterly basis, taking non-cash earning adjustments. All these numbers must be reported to both SEC and individual shareholders. Please, note that mutual ownership of shares is rare, i.e., as a rule, long-term investments comprise minuscule part of total company assets, except some financial companies due to specifics of their business.
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>OK, then the stability of the system lies on the "it's minuscule compared to..." - but then, whence the crash, if it's minuscule and not really shaking the building?
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>Unless what happened was that the investors/lenders, who did have significant assets in shares (any entity having a controlling interest in another would have to have it, right?), had their value expressed in part as the expected future value of other entities, and then used that value as collateral (or is "leverage" the fresher buzzword?) to create more future value by making more loans under expectation that their debtors will be able to yield even more future value. The payments for the repayment and interest would have to come from somewhere, or the value of the collateral would have to grow, or the future value was to be smaller than the present.
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>But that's how (I imagine) the air was pumped into the bubble. My major gripe with the system as it is is that there are just too many places where this imaginary (aka expected aka future aka estimated) value counts as real, and is sold as real. Then when confidence artists sell all the confidence that can be sold and there's none left in stock, most of that imaginary value vanishes. I'd somehow trust a good value theory more than this. Which is also a reason I'm not putting my money into that game - because it failed to produce confidence.

It is totally fantastic scenario. Generally, shares are not accepted as collaterals so company could not even get simple loans based on it, not even mentioning your long-stretched ideas. However, it is true, btw, that in some exotic places of Eastern Europe loans were really extended on these conditions causing periodic crashes.