Goldman Sachs' 3Q earnings were nothing short of spectacular, feeding the legend that it can do no wrong. But recent disclosures have tarnished the spectacular trading performance that more than offset other losses. People immediately wondered how they hedged in such massive volumes. Now, according to Fortune, the bank's recent disclosures make clear that a lot of the gains are paper gains from relatively illiquid securities, not actual gains from closed-out trades, as most assume they were. So once again the old level 3 assets issue crops up. The company says the gains were based on observable prices based in more liquid markets and that rules prevent the bank from classifying the assets at higher levels. It does seem that level 3 assets are small compared to total assets. The analysts are having a tough time figuring this one out. Good luck.  

For more:
- here's the Fortune article

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