Goldman Sachs Lies About Level 3 Values

April 9, 2008

Elaine Meinel Supkis

The pirates at Goldman Sachs announce they have figured out the value of their hard to value Level 3 Assets. And guess what? According to them, these pieces of paper increased in value by nearly 40% even as all others in the world collapsed! Isn't that amazing? Or rather, utterly, nakedly fake? GS stocks fell on this stunning news. Oil shot up to $112 a barrel and in response, the US is screaming at Switzerland to not buy energy products from Iran. Who will win this contest? Iran Kitty or Miz Liberty? I'm betting on the cat.

Soviet cartoon about Pirates attacking:

Goldman Sachs Level 3 Assets Jump, Exceeding Rivals'

Goldman Sachs Group Inc., the most profitable securities firm, reported an increase in hard-to- value assets during the first quarter, exceeding those at Morgan Stanley and Lehman Brothers Holdings Inc.

Goldman's so-called Level 3 assets surged 39 percent to $96.4 billion at the end of February from $69.2 billion in November, according to a filing with the U.S. Securities and Exchange Commission today. The ratio of Level 3 to total assets rose to 8.1 percent from 6.2 percent.

Investors are wary of banks and brokerages with difficult- to-sell securities on their books as $232 billion of writedowns and credit losses from the collapse of the subprime mortgage market have crippled earnings. More assets have become difficult to value in the last three months as investors shunned a wider array of credit, reducing trading.

Level III junk can't be priced except by the entity holding these things. So lo and behold, Goldman Sachs is doing really well because these things, these invisible things, these QSEPs, these qualifying special purpose entities we discussed yesterday, ROSE in value! Up and up and up! To the heavens! What on earth were these things that went utterly and wildly contrary to the desperately contracting asset value markets? Can these wondrous entities be described so we can judge the truth of this claim? Should we all trust Goldman Sachs?

Of course not! No way! Not only did these bizarre and unknowable QSEPs shoot upwards in value, the ratio of these things compared to the things that obviously dropped in value, rose, too! This is one of life's mysteries. If anyone is tempted to buy Goldman Sachs' inflated value stocks based on this news story, all we can say is, 'HAHAHA. Fools, money and partings are so fun, aren't they?'

And this news is so childish. Anyone who is sane and reads online commentary about these sorts of things won't be fooled. So who is fooled? Are there any fools left? Usually, in bear markets, both the wise and the fool are stripped down. The wise expect rationality and are hammered by the various schemes set up to save the status quo that is dying. The fools keep listening to the con artists working in the mainstream media and rush into the markets to buy thinking it has bottomed out when it is barely begun. But the con artists: they have to run this childish game until they can pull out without losing their shirts. So this news is set up to fool fools, not to reveal important information.

Note that in 2004, GS was trading at below or at $100 a share. But by May, 2007, it shot up to $225 a share. Then came the disaster of July, 2007. The Japanese carry trade began to unwind. GS dropped like a rock. Then, after the giant government bail outs as well as the sudden rate drops by the Fed, their stock hit its all-time high of $250 a share. Since then, it has lost all of the bubble gain from 2007.

Since Goldman Sachs has many operatives stationed at many points within our government as well as other countries' governments, the desire to keep their collective stocks rising is very strong as we can see. They want desperately to float above the financial sewer they flushed down so much toilet paper. According to the stock ticker, they lost value today. And the after hours trade is all down, down the drain. So I am guessing, the 'fools with money to part' are departing despite this stunning news.

LBO Freeze Cuts First-Quarter Fees to Wall Street by 75 Percent

The freeze in leveraged buyouts is slashing fees for investment banks by more than 75 percent as Blackstone Group LP and Kohlberg Kravis Roberts & Co., the industry's two biggest firms, put takeover plans on hold.

Private-equity companies paid $1 billion to securities firms in the U.S. and Europe during the first quarter, down from $4.3 billion a year earlier, data compiled by New York-based research firm Freeman & Co. and Thomson Financial show. Revenue from loan underwriting plunged more than 91 percent, and fees from advising on takeovers dropped 51 percent.

This news doesn't surprise me or anyone who has been tracking the economic news lately. So again, the business with Goldman Sachs having this miraculous rise in value is utterly comical. Looking at how their stocks are now falling, I suspect we may have to put GS on the potential death watch list? They have a lot of power and will cheerfully toss the entire US economic system overboard if this saves their own wealth. So this puts me in pessimistic mood. Bears won't be able to exploit the obvious weaknesses in Goldman Sachs because of this power to manipulate events.

But the near-total cessation of 'easy money' by generating 'deals' which mostly were schemes to dump endless loans from the Bank of Japan onto the ledgers of living businesses, is driving the spoiled brats who work for Goldman Sachs, nuts. Why isn't the wealth machine grinding out endless bonuses and why can't their stock balloon forever? This sort of childishness is at the basis of our financial system. Instead of a bunch of smart adults planning ahead for the future and looking at all things carefully, we have a bunch of drunken teenagers who want to play games day and night.

GE consumer finance unit gives up on U.S. consumer

GE Money sold its U.S. corporate payment services unit to American Express last month for $1.1 billion, illustrating its desire to exit from “markets where we have low growth opportunities or low sales,” said Robert Rendine, vice president of global communications at GE Money.

For instance, earnings growth at GE Money in the fourth quarter was around 7%, but that figure included double-digit growth in Europe and Asia and a 59% decline in the Americas, reflecting the challenges in the U.S. market.

A 60% decline in American debt increases? As I suggested a year ago, thanks to the Home ATM machine spitting out no more dollars, the ability to take on more debt has collapsed. One can get loans but only on very severe terms. Even as the Fed drops rates below the floor for the Big Boys at Goldman Sachs, the rates for the working classes only go up and up. I suppose GE's lending arm will relocate to Berlin? Or Beijing?

As we hit this relentless wall, the American people will either cut down on our appetite for goods or we will finally understand the business about saving money. There are times when we must all save, and times when it makes sense to go into debt. Such as when one buys one's first house. But keeping this debt going and making it worse every year thereafter is the road to poverty in the end. As we are discovering these days. Even though the Fed is now literally giving away money since it is being 'lent' at much less than the rate of inflation by a huge spread, we won't see our economy take off thanks to this largess stopping at the front doors of the Goldman Sachs pirate headquarters in Manhattan.

Volcker Stands Tall, Greenspan Keeps Shrinking: Caroline Baum

What really separates the two men, however, is the legacy issue. Volcker is content to let his record speak for itself: He inherited inflation of almost 15 percent and bequeathed a rate of 4 percent to posterity. It took two recessions to get there, but he did the heavy lifting on inflation.
*snip*
Nothing Greenspan says can alter the obvious: The Fed kept short-term rates too low for too long. No matter what metric you use, a reasonable person could not possibly come to any other conclusion.

Greenspan is desperate to deflect the blame for a credit crisis he called ``the most wrenching'' in 50 years. He can write his autobiography, which he did last year, but he can't write his epitaph. We, the public, will do that.

For the last 3 years, I have talked about Volker and how he used draconian methods to wipe out inflation. Suddenly, he is all over the news. I remember when Bernanke was chosen to follow Greenspan. I was one of the few to howl with rage over this selection. There were a number of people who were upset with the 'helicopter' talk by Bernanke. But most people smacked their lips with anticipation of lots of funny money being passed out like manna. It amuses me that Greenspan has finally fallen from 'perfect godhood' to 'I had nothing to do with anything' infantilism. Now, belatedly, Volker looks more and more like the only adult in the room. Will we now listen to him? Or is this a passing fad?

I do know that Obama is listening to him. So this is one step better than the McClinton duo. This headline made me laugh: TIME TO BRING PAUL VOLCKER OUT OF RETIREMENT Isn't this amusing.

IMF says US crisis is 'largest financial shock since Great Depression' Now, way, way too late, the IMF speaks up and notices the obvious. For years, as this crisis crawled up on us, when it was painfully obvious the US was NOT following IMF rules at all, this week, they finally say something. No solutions, of course. They mention that the US should do something about endless trade and budget deficits. But no mention of stopping US military aggression and pollution.

Of course, Americans are screaming at the Olympic torch bearers because of Chinese aggression in Tibet. But we were huge flag wavers, screaming about 9/11 when we hosted the Olympics even though we were invading not just Afghanistan but other nations! The IMF is just one of many international organizations that are fronts for US wealth doing whatever it wishes.

Haiti leader urges cut in food taxes to stop riots

Haiti's U.S.-backed president, Rene Preval, delivered his first public address since the rioting began last week, urging Congress to cut food taxes and appealing to the rioters to go home. Watch as the food riots intensify »

"The solution is not to go around destroying stores," he said. "I'm giving you orders to stop."

I remember when the US sponsored a coup in Haiti. We then promised the Haitians, we would shower them with aid. Instead, things went from bad to impossible there. Of course, the Haitian people aren't coming here to attack us. So we think this is OK. We can ignore them. Now we see food riots. Global inflation is now hammering the lowest classes across the planet. Darfur was the beloved cause celebre for the last 3 years but then, we don't occupy Darfur. We can blame the Chinese for that. Note that there will be no actors or Pelosi saying sweet nothings about HAITI. Tibet: yes. Haiti: NON. Maybe we can blame the French.

Crude tops $111 after supply report

Crude oil rose above $111 a barrel in New York and gasoline surged to a record after a government report showed that U.S. supplies unexpectedly dropped.

Crude oil inventories fell 3.15 million barrels to 316 million last week, the first decline since February, the Energy Department said. A 2.3-million-barrel gain was forecast, according to a Bloomberg News survey. Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell.

Once again, the price of oil shoots upwards. The US has gone around the planet, begging everyone to please isolate Iran totally. Then the price of oil shoots up. If this isn't the stupidest foreign policy plan on earth in the entire history of humanity, maybe we should run a contest about this. But then, look at all the dictators and emperors who woke up one day and said, 'Hey, maybe I should invade Russia in September!' So there is no shortage of stupid things here. The US is flying off a cliff here so what we need is a foreign policy that insures high oil prices!

This last week, Switzerland signed an energy treaty with Iran. This infuriated the Jews in the US government and Israel. They demanded the Swiss commit economic suicide on behalf of Jewish desires to control all their Muslim neighbors. But the Swiss refused since this was not in their collective national interests. I am expecting the US to stupidly spend much of our remaining diplomatic capital strong arming the Swiss into boycotting the Iranians. When will Americans figure out, the more we attack Iran Kitty, the poorer we are?

Fed May Slow Rate Cuts in Face of Shrinking Economy

Federal Reserve officials signaled they will slow the pace of interest-rate cuts even as they concluded ``some contraction in economic activity'' is likely.

Some Federal Open Market Committee members saw the danger of a ``prolonged and severe downturn,'' according to minutes of its March 18 meeting released yesterday. Still, ``monetary policy alone could not address fully the underlying problems in the housing and financial markets,'' the minutes said.

``It holds out the prospect that the committee will continue to be cautious going forward, and rather than dropping a half- point would be more inclined to drop a quarter-point,'' J. Alfred Broaddus Jr., former president of the Richmond Fed, said in a Bloomberg Television interview.

Evidently our bankers in Asia and Europe as well as the Arab kings and sheiks all warned us, rates drop any more, we are history. So the Fed can't feed Goldman Sachs infinitely cheaper and cheaper loans to cover their Level III QSEPs.

And on a lighter note, a funny Russian cartoon from the Evil Soviet era. I hope all my Canadian readers enjoy this. I happen to like hockey, myself. But am too arthritic to ice skate much anymore, alas.

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Comments

[GMG]

Dear Elaine,

When Paulson became TS, GS stock was in the high 140's, around 147 I think. It immediately took off, almost at the moment the announcement was made and it never looked back until recently. I remember this clearly and thinking how brilliant of an idea buying GS on the news would have been. This can be seen in your chart.

Take care,

GMG

[RobG]

Over at Mish's site (http://globaleconomicanalysis.blogspot.com
/2008/04/ponzi-financing-at-citigroup.html) it notes that Citi is lending money for private equity firms to by their leveraged loans - making them 'seem' to be worth 90 cents on the dollar (this keeps everyone waiting for Gordot still :-)

Reuters:
"Citigroup Inc's (C) plan to sell $12 billion of loans and bonds made to private equity firms is seen as a positive for the bank and the loan market, but the deal will leave the largest U.S. bank with exposure to those private equity firms even after the sale.

"That's because Citi is financing much of the sale itself, according to a person familiar with the deal. It is lending some money to the private equity firms, which will combine it with some of their own money to purchase the debt."

[Elaine Meinel Supkis]

Correct, Rob. Isn't it splendid? If only we can lend to ourselves infinite money, the Derivatives Beast won't ever show up!

And my latest article talks even more about all this. Mish is a doll and I am glad he is working in the same cotton fields I am trying to fight those bollweivels are in.

[Anthony]

Somebody compiled various food riot news across the globe. Good anecdote.

http://www.dailykos.com/storyonly/2008/4/10/81213/2770/133/493114

Here's a timeline of food riots since 2007:

January 2007 - Mexico riot over the increasing price of tortillas.
September 2007 - Indians in West Bengal riot over food shortages and public corruption.
February 2008 - Cameroons angry over high fuel and food prices.
February 2008 - Protesters in Burkina Fasso attacked government offices and burned, shops, cars and petrol stations.
Marchh 2008 - Senegalese citizens are beaten following protests against the high cost of living.
April 2008 - Haitians riot over rising food prices.
April 2008 - Yemenis riot as the price of wheat has doubled since February, while rice and vegetable oil have gone up 20%.
April 2008 - Egyptians riot over the price of bread.

[HAL LIEBERMAN]

So when did Bush, Cheyny, Gates and Condolezza Eice, Petraeus and Crocker convert to Judaism? And just for the record I detest my namesake for his hawkishness, not his religion,
Lieberman

[Elaine Meinel Supkis]

Lieberman, your name is a lovely name: loving man. Do cherish it!

You know, many names like yours were forced upon your family by the writ of the Austro-hungarian Emperor. In my own family, the Cohens refused to change their name to a German name so the imperial officials named them 'Katz'.

Which actually is interesting since cats were one of the first gods in Egypt. Heh.

Bear your name with pride!

[DeVaul]

I have a question here. Everyone seems to know who is or is not Jewish by their name, but I cannot figure out how they know this. Their names are mostly German (I studied in Germany), so how can one say that a person with a German name is Jewish? Even the Jews seem to know who is or is not Jewish by their name (which never looks Jewish to me).

Is there some list of names somewhere that everyone has been consulting? I am mystified by this and have been all my life.

Would appreciate any info on this matter.

[Elaine Meinel Supkis]

DeVaul, the nature of the names is the give away. 'Katz' is an insult so it was forced upon the Cohens in Vienna. My German name means 'It is all mine! HAHAHA!' because it was a baron's name. Just like my English name, Steele, was earned via the sword. But the cruel officials in Austria put names that mean 'coward' or 'fool' or 'sneak thief' in German on the names of innocent Jewish people.

Others obeyed the orders from above and gave themselves 'golden names' like Goldschmidt or Goldwasser, or Gelder, etc. 'Rich man' and 'money maker' etc were chosen.

So it is quite possible to tell who is who. Germans with family names were mostly peasants and had names NO Jew could have like 'Bauern' or 'Muller' etc. No Jews could be farmers or millers, etc. Nor could they be named after villages or regions.

So anyone who is native to the region before Hitler and his evil gang came along, everyone knew who everyone else was due to names.

[Ed-M]

Which is why families of my surname are rare in Germany as well as the US. When my father made business trips to Berlin, he found only one family with the same surname. And they pronounced the "i" and not the "e," just like most people here. Probably so people woudn't think they're assimilated Jews. Which my ancestors probably were.

[Ed-M]

Oh yeah. Reverse the "i" and the "e" and you get "Meissner," who came from Meissen and were porcelain makers.

[Elaine Meinel Supkis]

The Jewish people had to hide themselves in order to survive. The history of vicious discrimination against them comes to a horrible climax in 1933 to 1945.