Just something to think about…
“Consequently, in their view, there is no true market; consequently the assets are Level 3. It is notable for example that Goldman Sachs' Level 3 assets increased in the last quarter to $82.3 billion from $54.7 billion. Since it seems most unlikely that Goldman, a smart operator if ever there was one, has been deliberately loading up on $26.6 billion worth of illiquid rubbish, the change must result largely from strategic reclassification from Level 2 to Level 3. Indeed, Goldman's Level 3 asset-backed securities doubled during the quarter to $25 billion, presumably for precisely the reason that Goldman found unattractive the market prices prevailing for those securities. At $82.3 billion, Goldman Sachs Level 3 assets are more than twice its capital. This is not therefore a peripheral problem, which can be allowed to remain hidden within the arcana of accounting conferences. The reality is that, as was demonstrated in the true recessions of 1973-74 and 1980-82 but not in the mere dips of 1990-92 and 2001-02, the value of highly illiquid Level 3 assets taken on at the peak of a bull market is pretty well a big fat zero.”
Read the full article here.
Wednesday, April 16, 2008
Posted by Ben Bittrolff at 8:25 AM