Level 3 Assets - What's in your wallet?

Aye carumba. If you're not familiar with what Level 3 assets are, then please take some time to look it up in detail. Basically, companies must report the assets they hold and mark them to fair value as best they can. They do this by allocating the assets into 3 class levels. Level 1 are assets that are trading with some frequency and therefore can be price easily. Level 2 assets have less of a liquid market, therefore are marked using a modified formula. Level 3 assets have no liquidity and therefore companies can park assets in level 3 at basically full value as they have complete control over what the value is.

So what's the big deal with this. Well, basically Level 3 assets have become the giant rug under which all of the "toxic waste" these companies are holding has been accumulating. If you look at Freddie Mac, they've increased Level 3 assets in just 1 qtr from $32 billion to $157 billion. That's obscene. The same trick is being done by most of the financial institutions as well. If you combine that with the $300-400 billion or so of junk that the fed is swapping for gold, then you have a SERIOUS amount of assets that are not even close to being marked to market on these companies books. You can rest assured that most of those assets are worth between 20 cents to 70 cents (max) on the dollar. That's a major haircut that these companies haven't taken yet. Even with these shananigans, ALL of these companies are still having to raise capital at rediculous interest rates and shareholder dilutions just to stay viable.

Yet, the bubbleheads are out there saying the credit crunch is over and we're in the 7th inning stretch. What a joke. We haven't even begun to see the worst in Alt-A, Option ARMS, credit card securities, commercial real estate, car loans, corporate debt and unemployment. All are heading the wrong direction and quickly. All of these securities rely on one thing (consumers) and consumers have no ability to support the payments anymore, let alone acquire new debt. There's only one direction this can all go down and pretty soon these companies won't be able to raise additional capital. That's why you are starting to see the firesales of assets left and right. Citibank (selling $400 billion assets), GE (selling applicances at $8 billion), etc... Where do you think all these assets are going...correct, overseas. The US is on sale ladies and gentlemen and it won't end until most of our precious assets have been acquired OR we get someone in government who will instill some sanity in the economic environment. Wonder which will happen first.