Valuations of bonds to get tougher at top firms?

A lot has been made of the trend toward ever higher levels 3 assets at top banks. According to Forbes, Goldman Sachs raised its level 3 assets to $72 billion in the third quarter from $54 billion in the second quarter. Lehman Brothers, to $34.6 billion from $22 billion. Morgan Stanley, to $88 billion from $63 billion. The knee-jerk interpretation is that we don't know exactly what these assets are and how they ought to be valued and therefore should remain on watch for more earnings turbulence. Nothing wrong with that view. But a lower level of level 3 assets doesn't mean a company is out of the woods. Consider Bear Stearns, it has only $20 billion in such assets, up from $18 billion. But its earning suffered mightily. Merrill Lynch's level 3 assets total only $16 billion. Still, you can't help but feel that high level 3 to total capital ratios--Goldman's ratio is at nearly 2 to 1--somehow suggests that some more hits may be coming.    

For more:
- here's the Forbes article

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