All That Glitters at Goldman

So, the common understanding is that Goldman Sachs (GS), which had greater percentage exposure to "Level 3" or so-called "mark-to-model" assets than either Citi or Bear Stearns, escaped the subprime crisis, Indiana-Jones-like, completely unscathed.

After the stock crashed in July with all the other ibanks, it dutifully "uncrashed" through September as it was revealed that Goldman was short the very subprime mortgage bonds that they were marketing, as Ben Stein discussed in early December.

In the middle of this improbable success, I've been wondering . . . is it possible that Goldman's choice not to write down its Level 3 assets (a term that means that they have little or no exchange value and therefore must have a value applied to them) has been postponed until 2008 in order to keep the books together for something as trifling as end-of-the-year bonuses? Could we soon see write-downs from Goldman now that these bonuses are safely housed?

I would never argue that this is happening, because I don't know. . . But I believe that it is possible, and that the thesis would help explain an extremely unlikely rally in a company that common sense would tell anyone is in this credit crunch waist-deep. I also think that I'm receiving good odds here, and the chance of any such shenanigans (which would imply a crash in Goldman beginning basically now) is easily large enough to compensate for the risk involved.

As Jack Handey once said, "What is it that makes a complete stranger dive into an icy river to save a solid gold baby? Maybe we'll never know."

Disclosure: the author is short Goldman Sachs (GS)