You just can’t make this stuff up. Check out comments from Lehman and Goldman about the new Primary Dealer Credit Facility.

The Federal Reserve, in its first extension of credit to non-banks since the Great Depression, lent $28.8 billion as of yesterday to large U.S. securities firms with financing aimed at stabilizing capital markets.

Other credit extensions including loans to facilitate JPMorgan Chase & Co.’s purchase of Bear Stearns Cos. averaged $5.5 billion a day for the week ended yesterday, and the balance ended at zero, according to the Fed’s weekly balance sheet. The report listed loans to Wall Street firms under a plan announced March 16 to alleviate a cash shortage.

Morgan Stanley and Goldman Sachs Group Inc. said yesterday that they borrowed to “test” the new lending facility, while Lehman Brothers Holdings Inc.’s financial chief said the company was using the facility to “show some leadership.”

Those statements are so blatantly ridiculous I am stunned they could actually make them. And while on the subject of Goldman Sachs, let’s take a closer look at their earnings.

Goldman Earnings Review

Goldman Sachs rallied strong a couple days ago even though earnings fell in half. The reason is “Goldman Beat The Street“. Let’s take a look at how watered down the street was.

The bank’s trading and principal investments revenue fell by nearly half to $5.12 billion from last year, and down by 26 percent from the fourth quarter, reflecting the continued turmoil in financial markets this year.

Goldman also recorded about $1 billion of net losses on residential mortgage loans and securities, as well as net losses of $1 billion on leveraged loans. Before hedges, those write-downs were $1.4 billion.

Meanwhile investment banking revenue fell by a third to $1.17 billion, reflecting a slump in debt underwriting and decline in stock offerings. Goldman said its investment banking transaction backlog decreased for the second straight quarter.

Merrill Lynch noted Goldman did not report commercial real estate write-downs, adding “It makes you wonder and raises the question for potential marks for the second quarter.”

How To Beat The Street (the old fashioned way)

Bloomberg is reporting Goldman Sachs Profit Falls 53%, Less Than Estimated. Here is the key snip:

Goldman’s so-called Level 3 assets, which are the hardest to value, rose to about 8 percent of the firm’s total assets from about 7 percent in the prior quarter, Viniar told analysts. The increase was largely related to commercial real estate loans that were moved from Level 2, where assets are valued in part using market prices, to Level 3.

Goldman has $873 billion in assets. That means Goldman moved $8.73 billion in commercial real estate loans from Level 2 “Mark To Matrix” to Level 3 “Mark To Fantasy”. Something tells me Goldman did not like the answer their matrix model was giving them.

Mike “Mish” Shedlock
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