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That famous line from Clinton press secretary Mike McCurry, during the depths of the Monica Lewinski scandal, earned a roar of appreciation from the White House press corps. It also seems to cover the drip-drip-drip of intimation that for all the allegedly ‘kitchen sink’ third-quarter mostly-not-so-much profit announcements from Global Megabank NA, nobody’s said much about the stench of a whole family of decomposing rats emanating from the dishwasher:

And Goldman (NYSE:GS) reaped huge gains within the level 3 pot in the third quarter. For example, it made a net gain of $2.94 billion from level 3 derivatives, financial instruments whose value is based on the value of underlying securities. And get this: $2.62 billion of that gain was unrealized. Was that amount unrealized because there's no way illiquid level 3 derivatives could be cashed out at the prices Goldman attached to them?

Doubtless one of those Level 3 ‘assets’—“securities and derivatives that can’t be valued according to observable prices in liquid public markets”—was the dreck shown in the screenshot below (click for a (barely) more legible image).

Standard & Poo put this CDO on CreditWatch negative on Aug. 10, although it does not yet seem to have got round to pulling the plug. But as A. Derivatives Consultant, in observing that Treasury secretary Hank Paulson managed to get through his recent Hill testimony without once mentioning the role of investment banks in designing, building and distributing the arcane building blocks of the credit crunch, noted:

You can write off the lower tranches and mark down the upper tranches now.

Questions arise about Goldman's blowout quarter
by Peter Eavis
Fortune Oct. 15 2007

(Forelock tug: DealBook)

76 Ratings On 19 U.S. Cash Flow, Hybrid CDOs Put On Watch Neg
Standard & Poo Aug. 10 2007

Source: Goldman: Telling the Truth, Slowly