Five Dumbest Things on Wall Street: April 11

3. Goldman's Defcon 3

The Wall Street story line that Goldman Sachs GS steered clear of the housing bust is getting shaky.

The investment bank has been universally cheered as a standout in that it hasn't suffered crushing losses or massive writedowns on its mortgage-related portfolio. It also avoided the surge in so-called Level 3 assets, or illiquid securities facing a writedown, that sullied its counterparts like Bear Stearns and Lehman Brothers LEH.

That's the case no more.

Goldman's Level 3 tally rose to $96.39 billion, or 13% of total assets at fair value, in the latest quarter, up from $69.15 billion, or 10% of such assets, at the end of November. The Level 3 assets for which it bears economic exposure rose to $82.32 billion, or 11% of total assets at fair value, from $54.71 billion, or 8% of total assets.

Not surprisingly, mortgage-related assets were the biggest source of Goldman's growing pile Level 3 paper in its fiscal first quarter. They totaled $24.99 billion, while private-equity and real estate fund investments accounted for $18.83 billion and bank loans added up to $17.68 billion.

There are scattered signs that Wall Street's credit crisis may be abating, but spreads in the bond market are still alarmingly wide, and Goldman appears to be knee-deep in the swamp. If the media don't stop singing hosannas soon and start reporting reality, it may get caught in the writedown.

Dumb-o-meter score: 85. All hail the geniuses at...