http://www.rgemonitor.com/blog/roubini/224871 Page down... Monday evening update: Bernard - a contributor to the comments on this blog has provided further insights and data on the level 3 assets of some major US financial institutions. He says: Look at the info Citigroup just filed with the SEC today: they have $135 BILLION in LEVEL 3 ASSETS. I have a neat idea. Why don't we take every single major financial institution out there and then divide their total Level 3 assets by their equity capital base and make comparisons? This will give us a better idea as to which of them may really remain solvent at the end of the day. Shall we? Let's have a look at Citigroup. Their equity base is $128 billion. Therefore, their Level 3 assets to equity ratio: 105% How about Goldman Sachs? Level 3 assets are $72 billion, equity base is $39 billion. Their Level 3 assets to equity ratio is 185%. Morgan Stanley: $88 billion in Level 3, equity base is $35 billion. Ratio: 251% (WOW!) Bear Stearns: $20 billion in Level 3, equity base is $13 billion. Ratio: 154% Lehman Brothers: $35 billion in Level 3, $22 billion in equity. Ratio: 159% Merrill Lynch: $16 billion in Level 3, $42 billion in equity. Ratio: 38% Here is the Level 3 assets to equity ratio summary: Citigroup 105% Goldman Sachs 185% Morgan Stanley 251% Bear Stearns 154% Lehman Brothers 159% Merrill Lynch 38% This becomes very interesting now, doesn't it? Looks to me like Goldman Sachs and Morgan Stanley are by far in the WORST situation among the investment banks. And yet the media is focusing all of their attention on Merrill Lynch---which actually has by far THE LEAST EXPOSURE of all of them. What a joke. As I said before, the media should stop diverting attention and trying to make this into a "Merrill-specific" problem. All of the investment banks are in deep trouble. These numbers should make that extremely evident. The deception must be exposed. Written by Bernard on 2007-11-05 11:33:55
The whole US economy simply has so little cash flow or equity behind it. The last four years have been massive balance sheet expansion.
looks like 1929, smells like 1929... Look like when the management team from ERON got fired, they got jobs as investment bankers !!! ha ha ha
So you mean the imaginary, non-marketable, restricted, government bonds held in the Social Security Trust Fund would be classified as Level 2. Then what the hell is a Level 3? Is it like monetary supply? M1 = Level 1 M2 = Level 2 M3 = Level ??? Why not do a spinoff of sub-prime loans and create a new tracking stock, like T did with AWE several years back. All revenue (losses) from said tracking stock would be reported. The value of the tracking stock would be the value of the underlying level 3 asset.
from marketwatch http://www.marketwatch.com/news/sto...19-089B-4D4D-A279-2F8F5B17D8DA}&dist=hplatest The company also said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid or trade so infrequently that they have no reliable price, so their valuations are based on management's best guess. The investment bank said its total liabilities related to level 3 assets at the end of September stood at $40.36 billion, according to the 10-Q filing with the SEC. Citigroup said it often hedges its level 3 positions.
http://www.huffingtonpost.com/ian-welsh/the-wile-e-coyote-econom_b_71285.html There's a mystery on Wall Street. Merrill Lynch last week wrote off $8.4 billion in its subprime mortgage business, a figure revised up from $4.9 billion, yet Goldman Sachs reported an excellent quarter and didn't feel the need for any write-offs. The real secret of the difference is likely to be in the details of their accounting, and in particular in the murky world, shortly to be revealed, of their "Level 3" asset portfolios.... ...From November 15, we will have a new tool for figuring out how much toxic waste is in investment banks' balance sheets. The new accounting rule SFAS157 requires banks to divide their tradeable assets into three "levels" according to how easy it is to get a market price for them. Level 1 assets have quoted prices in active markets. At the other extreme Level 3 assets have only unobservable inputs to measure value and are thus valued by reference to the banks' own models. Goldman Sachs has disclosed its Level 3 assets, two quarters before it would be compelled to do so in the period ending February 29, 2008. Their total was $72 billion, which at first sight looks reasonable because it is only 8% of total assets. However the problem becomes more serious when you realize that $72 billion is twice Goldman's capital of $36 billion. In an extreme situation therefore, Goldman's entire existence rests on the value of its Level 3 assets. The same presumably applies to other major investment banks - since they employ traders and risk managers with similar educations, operating in a similar culture, they probably have Level 3 assets of around twice capital.... ...There has been no rush to disclose Level 3 assets in advance of the first quarter in which it becomes compulsory, probably that ending in February or March 2008. Figures that have been disclosed show Lehman with $22 billion in Level 3 assets, 100% of capital, Bear Stearns with $20 billion, 155% of capital and J.P. Morgan Chase with about $60 billion, 50% of capital. However those figures are almost certainly low; the border between Level 2 and Level 3 is a fuzzy one and it is unquestionably in the interest of banks to classify as many of their assets as possible as Level 2, where analysts won't worry about them, rather than Level 3, where analyst concern is likely. The reason analysts should worry is that not only are Level 3 assets subject to eccentric valuation by the institution holding them, but the ability to write up their value in good times and get paid bonuses based on their capital uplift brings a temptation that few on Wall Street appear capable of resisting. Both Goldman Sachs and Merrill Lynch are reported to have made profits of more than $1 billion on their holdings of Level 3 assets in the first half of 2007, for example, profits on which bonuses will no doubt be paid at the end of their fiscal years... ...Defenders of Goldman Sachs and the rest of Wall Street will insist that less than 27% of their level 3 assets are represented by subprime mortgages yet that is hardly the point. Subprime mortgages, estimated to cause losses of $400-500 billion to the market as a whole, though only a fraction of that to Wall Street, have been only the first of the Level 3 asset disasters to surface. There is huge potential for further losses among assets whose value has never been solidly based.