Off-balance-sheet entities? Really?

Over my vacation, I read Kurt Eichenwald’s Conspiracy of Fools, which is a wonderfully entertaining, novelistic narrative of Enron’s history and collapse. More on that in future posts, but having just finished that book, I choked when I read this in the New York Times’s hagiographic profile of Henry Paulson from Sunday:

Most notably, he advocated bundling bad loans into off-balance-sheet entities that theoretically would allow banks to improve their financial standing. The plan was a total flop and yet another signal that Mr. Paulson underestimated the severity of the problem.

I’m sorry, but how would that have helped? Isn’t this just an accounting trick? Isn’t the issue that these loans are not being repaid? I can understand the value in writing the loans down, but moving them off balance sheet without writing the loans down just shifts the problem around. Something’s very wrong with the state of accounting if this is what the Treasury Secretary is recommending.