Now raising intellectual capital

Less can be more


It’s good news when a bank reports a decline in the percentage of problem assets on its balance sheet. 

At Goldman Sachs it could even be better news down the line.

The bank’s tough-to-value Level 3 assets at the end of the second quarter totaled $54.5 billion, down from $66.2 billion in November 2008 — the end of the firm’s most recent fiscal year. 

Better yet, Level 3 assets in June represented 6.1% of Goldman’s total assets, compared to 7.5% of the firm’s assets at the end of November. That’s a positive trend line, especially for those who worry about Goldman’s balance sheet being too exposed to potentially toxic assets. 

But on close inspection, it appears much of this decline in Level 3 is due to mounting “unrealized losses” stemming from mark-to-market write downs on some $8 billion in commercial real estate-related assets. And this may not be as bad as it seems. 

What derivatives, porn have in common


The key to the Obama administration’s plan to bring order to the murky world of derivatives ultimately rests on the definition of what is a standard run-of-the mill derivative.

That’s because Team Obama wants the vast majority of derivatives — financial instruments that derive their value from an underlying stock, bond or other asset — to get traded on regulated and well-capitalized exchanges and clearing houses.

It’s not all golden at Goldman


It’s hard to find much to quibble about with Goldman Sachs’ second-quarter performance–at least from a dollars perspective.

You just don’t expect to find many landmines in a 10Q, when an investment firm manages to take in more than $100 million in revenues from trading on 46 days. 

Goldman’s commercial junk pile


Goldman Sachs, as I’ve pointed out before, has done a good job reducing its exposure to commerical mortgages by selling off potentially troublesome loans well ahead of the curve.

But it appears what’s left in Goldman’s commercial mortgage bin is all but untradeable, if not potenially toxic.

Wishing away toxic assets


It wasn’t too long ago that there were worries on Wall Street, and presumably in Washington, about the rising tide of so-called Level 3 assets on bank balance sheets. That’s all those hard-to-trade and impossible-to-value securities that many like to call “toxic assets,” but that U.S. Treasury officials euphemistically refer to as “legacy assets”.

These days, however, Washington policymakers seem to have forgotten all about those concerns. How else can you explain the Treasury’s decision to allow 10 banks to repay $68 billion in TARP funds, even though the trash heap of ailing real estate-related securities and other troubled assets at many of these institutions has only grown since last summer.