miniMe

How Much Are Goldman's Level 3 Assets Worth?

from ItsJustMe:
"Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital."

What happens if GS goes bankrupt? Doesn't that mean that the Fed can't get back the money it loaned to GS? Doesn't the Fed get stuck with whatever collateral it was given for the loans in this scenario? And if the collateral is worthless (a lot of it is) or even just worth 20% of the "model value", doesn't that mean that the Fed, and hence the taxpayer, has exchanged cash (in the form of loans) for worthless junk, and the value of the dollar (and hence the lifesavings of every American) goes down the tubes?

As for the idea of GS going bankrupt - just look at Bear Sterns.