Level Three Assets: Banks & Brokers

Three terrific charts on Level 3 assets — these are the difficult to trade/value/sell junk.

Check out Citi, and Fannie & Freddie!




Charts via Jake at EconomPic


I cannot figure out why the SEC and FASB simply refuses to force firms to inform investors what is actually on their books. I guess they are particularly enamored of the Japanese model.

FASB: OK For USA to Turn Japanese   (July 2008) http://bigpicture.typepad.com/comments/2008/07/fasb-ok-for-usa.html

Turning Japanese?  (September 2003)  http://bigpicture.typepad.com/comments/2003/09/turning_japanes.html

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What's been said:

Discussions found on the web:
  1. Steve Barry commented on Aug 15

    Yes…the Japanese model works here because human nature never changes. For anyone who ever worked in a large corporation, it is ingrained in you that you don’t want to send bad news up the ladder. I’m sure the people who are telling the CEOs what is going on are putting a positive spin on it…and the people below them are putting a positive spin…that is how excrement turns to gold once it gets to the CEO suite. The CEO makes 400 times the grunts’ salary, so he/she is basically out of touch from the getgo. And the shareowners don’t exert control, because the CEO own tons more shares than most shareowners.

    As for Japan, I remember visiting there in 1999 and asked my friend about some beautiful large buildings in downtown Tokyo…he said they were empty – that they were from the “bubble time.” Guess what…welcome to bubble time in America.

  2. Jeff commented on Aug 15

    Why is anyone in their right minds buying stock in these companies now?

    Just because a sector is beaten down doesn’t mean a bottom is in place and it’s “let the good times roll” again. I just don’t get it. Investors should still be running away from this sector in DROVES.

  3. Jeff commented on Aug 15

    Steve Barry – You hit the nail right on the head, which is one big reason why I’m no longer in “Corporate America”. Those places ooze self-denial and arrogance. The disconnect between even upper management and the executive suite is simply enormous. At times it was humorous to me, but eventually I couldn’t stand it anymore and had to bail. It was rotting my soul.

  4. larster commented on Aug 15

    Kind of makes you wonder what charts that Brown, Kudlow, and Bill Miller are looking at.

  5. Steve Barry commented on Aug 15

    Interesting to see GE up there…owner of CNBC, wink. Gee maybe that explains the cheery silver-lining team they have assembled.

  6. Jeff commented on Aug 15

    Pisani on asserting that the U.S. is further along than everyone else with the market’s troubles and financials are bottoming. Good grief.

    Can someone please answer for me even if the financials are getting close to completing their write-off bonanza, how/where are they going to replace those revenue streams? The model they were using is broken forever. What, pray tell, is going to replace that gravy train? Why isn’t anyone (Pisani) asking this question??????

  7. Steve Barry commented on Aug 15


    Because General Electric, parent of CNBC is number 2 on the list of Level 3 assets per Total Assets above.

  8. Al Czervic commented on Aug 15

    “I cannot figure out why the SEC and FASB simply refuses to force firms to inform investors what is actually on their books.”

    Sure you can.

  9. Steve G commented on Aug 15

    Barry – Any idea whether these charts reflect SIV holdings?

  10. Jeff commented on Aug 15

    Are people basically waiting for these firms to mark back “up” these assets once everything is fixed (double entendre intended) and all is well again? Because other than that (which is highly dubious given the pathetic state of the housing and credit markets), where are these firms going to replace this “revenue” (I use that term loosely)? Are they working feverishly on a new bubble/ponzi scheme? Is that just assumed by now?

  11. scorpio commented on Aug 15

    interesting that as % of equity GS worse than LEH or C

  12. Mark E Hoffer commented on Aug 15

    ” And the shareowners don’t exert control, because the CEO own tons more shares than most shareowners. ”


    with this, isn’t the problem: And the shareowners don’t exert control…

    more because they are ‘shareowners’, with no vote (see: ISSI), INO- in name only, through their participation in MutualFunds?

    everyday People are fueling the perpetual bid for these shares, almost a 2.0 version of Taxation w/o Representation.

  13. Stuart commented on Aug 15

    Because of the repercussions of exposing to the public. The SEC and FASB cannot handle the truth, or rather the public’s awareness of the true state of the banks et al. This is why they do not force the issue. It’s better to lie and obfuscate and let the public speculate than admit and accept suicide.

  14. JC commented on Aug 15

    All the other names are “the usual suspects” in this financial debacle, but if GE were to end up on life support that would really rattle the market.

  15. JC commented on Aug 15

    It’s crazy to place reliance on the unaudited quarterly reports of the banks & brokers. The ones who are deepest in doo-doo will postpone the truth until/unless their audit firms hold their feet to the fire.

    I see Mccains son resigned from the BOD ofa Nevada bank, I don’t think we’ll have to wait long to find out why. They were losing deposits BEFORE his resignation made news, he was on the audit comm

  16. 12th Percentile commented on Aug 15

    Can we retire the “GS are the smartest guys in the room” crap now?

  17. Frank commented on Aug 15

    Jeff, you keep asking how banks are going to make money in the future, as though the entire global economy is facing armageddon. Businesses will continue to require loans in order to grow. People will continue to require mortgages, loans and credit in order to purchase homes, educations, vehicles, etc. Banks will make money the same way they’ve been making money since their inception. Chillax man, this too shall pass…

  18. malabar commented on Aug 15

    “I cannot figure out why the SEC and FASB simply refuses to force firms to inform investors what is actually on their books.”


    Crony capitalism revolving door!

    Rubin leaves Goldman becomes Treasury secretary. Engineers repeal of Glass-Steagall. Leaves government and now becomes Chairman of Citi.

    Franklin Raines. Leaves government as Clinton’s budget director and becomes CEO of Fannie. Get’s caught in Enron style accounting scandal. Makes off with millions.

    Hank Paulson, leaves as CEO Goldman becomes Treasury secretary. Engineers taxpayer bailout of Wall Street and Fannie/Freddie.

    Alan Greenspan. Never met a crony bailout he didn’t like. Father of credit bubble. Cheerleader for credit bubble “innovations” like CDOs. Now, at PIMCO which is loaded to the gills with Agency debt. Big beneficiary of Fannie/Freddie bailout.

  19. Winston Munn commented on Aug 15

    We cannot forget the level 3 assets held by the Federal Reserve in exchange for U.S. Treasuries.

    Where does the Fed fall on this list?

  20. Jeff commented on Aug 15

    Frank: I’m quite “chillax” actually, thank you very much. I fully realize the banks will continue to make money on their OTHER traditional banking businesses, but correct me if I’m wrong, wasn’t a very significant portion of their “earnec income” over the past 3-5 years from businesses/business model (e.g. securitization) that is new obselete or at least will be dormant for quite some time? Not saying it’s the end of the financials or armageddon by any means. What I’m saying is where/how are they going to immediately replace those income streams that have now vanished? Which means, I don’t see a quick turnaround for them in the offing. Sure, they’ll come back over time, but I don’t think it will happen as quickly as people are thinking/hoping.

  21. Lara commented on Aug 15

    Forgive me, but the way I read the chart, Citi has level 3 assets “worth” 160 TRILLION? Am I right? Is someone is smoking something?

  22. Mark E Hoffer commented on Aug 15

    160,000 (000,000)

    160, 000, 000, 000

    160 Billion

    never hurts to 2X check

  23. bk commented on Aug 16

    What I don’t get is how Morgan Stanley has avoided huge markdowns. Are their toxic assets less toxic than Citi’s or Merill’s?

  24. Mark commented on Aug 16

    There was an article some time ago that spoke to the issues mentioned by several posters, namely, how will banks survive? Banks (some) will survive but will likely not see revenue streams like they have in the past. Banks will return to the staid process of making loans to people with good credit. They will be forced out of hedges, mbs, cdos, etc. It used to be that banks made precious little else other than return on loans because that was their purpose.

  25. Don Michaels commented on Aug 16

    Is it just me, or do others think things are upside down if the Feds pick Morgan-Stanley to review Fannie and Freddie?

  26. Patrick McMurray commented on Aug 16

    Gee, could GE suddenly have to layoff the whole cheerleader squad? Now THAT would be a Black Swan, plucked, cooked and served to the investing public….

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