More Loses Still to Come

Wall Street Journal has a story on how Merrill has been trying to delay the losses on the mortgages. Merrill was trying to sell the mortgages to Hedge Funds with a guarantee to by it back at a fixed price. That's right. I sell it to you, you sell it back to me. Now the price of security is whatever I want it to be.

You just gotta wonder what kind of losses are at the other firms. I would think there is alot more of this from Bear Stearns, Lehman, and Goldman.

This just may be the tip of the iceberg.

Goldman has $72 billion in Level 3 assets. That is twice their capital of $36 billion. If you take a 20% loss on the $72 billion, that would be $14.4 billion.

In the third quarter, Goldman had a net gain of $2.94 billion from Level 3 derivatives. The gain was unrealized because they did not sell any of the securities.

The worst part of all this is that Henry PaulSIV's Super SIV idea is similar to this. By having the Super SIV fund buy the these securities (which they claim to be AAA. But at the rate that these securities are getting downgraded, AAA could quickly become BBB or worse), the institutions don't have to sell those securities to open market.
When Japan was doing similar things in the 90's, Robert Rubin was telling them not to hide loses. I wonder if he has a diffent opinion this time around now that he is on the Citigroup Board.

http://online.wsj.com/article/SB119396956371280131.html?mod=hps_us_whats_news