Even though Merrill Lynch & Co. (NYSE: MER), Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC) have taken multi-billion dollar write downs because of the collapse of the subprime mortgage market, Goldman Sachs Group Inc. (NYSE: GS) appears to be weathering the meltdown just fine.

Speaking at a Merrill Lynch conference, Chief Executive Lloyd Blankfein said the investment bank doesn't expect to take any significant write downs and has a "pretty good grip" on asset valuations, according to Reuters. Moreover, the company has a short position in subprime mortgages. Shares of Goldman Sachs, which haven't done squat for the past six months, are up 5.5% in mid-morning trading to $226.56.

Whomever decided to go short in subprime mortgages, will no doubt be getting a fat bonus. Investors shouldn't pop the champagne corks quite yet. The extent of the subprime meltdown is still being determined because the housing market won't rebound for quite some time.

Federal Reserve Chairman Ben Bernanke doesn't see himself as Wall Street's sugar daddy. That point is abundantly clear from a speech he made Monday in New York.

Although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so. Developments over the past few months reinforce this point. Those who made bad investment decisions lost money. In particular, investors in subprime mortgages have sustained significant losses, and many of the mortgage companies that made those loans have failed. Moreover, market participants are learning and adjusting--for example, by insisting on better mortgage underwriting and by performing better due diligence on structured credit products. Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before.

That sound like tough love, doesn't it? Bernanke certainly seems to be sympathetic to the plight of average people and said the Fed will take action "as needed." There may not been a need for the Fed to do anything at its upcoming meeting. September retail sales were pretty strong and data indicates that consumers are weathering the economic uncertainty.

Bernanke doesn't mince words. He said "further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year." But does that mean that more interest rate cuts are coming? I am not sure.

People shouldn't expect Bernanke to deliver them a rose garden of continued interest rate cuts which he clearly has no interest in promising.

The credit spigot continues to flow into the market.

Earlier this morning, Central Bankers in Europe loaned 47.7 billion euros to banks, down from 61 billion euros on Friday, according to Bloomberg News. The Bank of Japan added 600 billion yen, the Wall Street Journal said. Investors are betting that the Federal Reserve will likely follow the European's lead which is why stocks are trading up in pre-market action. Plus, the Federal funds matched the Federal Reserve's target of 5.25 percent. Whether that gain can be sustained will depend on how the market reacts to several key economic reports.

First, the Commerce Department reported a modest rebound in retail sales in July compared with June when they fell. The Labor Department's Producer Price Index and Consumer Price Indexes are due to be released Wednesday.

The news wasn't all bad though.

Blackstone Group LP (NYSE: BX) today reported that its net income more than tripled.

Goldman Sachs Group Inc. (NYSE: GS) said that had gotten $3 billion in new capital for its Global Equity Opportunities Fund. The company's strategist Abby Joseph Cohen told clients that fundamental investors now see value.

President Bush's political guru Karl Rove plans to resign at the end of the month, according to media reports.

Fed Chair Ben Bernanke may be regretting the speeches he gave which tried to comfort investors with the idea that problems in the subprime mortgage market were contained. Yesterday, I posted about how banks, already nervous about subprime loans, are stiffening terms for other borrowers -- like those in private equity.

Today, the Wall Street Journal [subscription required] reports that bad loans are growing in a new category -- commercial mortgage-backed securities (CMBSs). CMBSs are packages of mortgages made to companies which buy real estate for operating their businesses -- such as retail stores in malls. CMBS delinquencies rose 13% in the second quarter to $1.65 billion from $1.46 billion in the first quarter, according to Standard & Poor's, which attributes the rise to overaggressive loans -- e.g., interest-only loans, which allow borrowers to forgo paying down loan balances -- made in 2006, as well as increased problems in the retail sector.

This is the first I've heard of the problem. And it suggests that there is even more trouble ahead -- commercial borrowers took out more loans than than their properties were worth in the second quarter of 2007 -- 117% more than their properties' values to be precise. What is probably going on here is that bankers generate such high fees making the mortgages and selling them that they loosen their credit standards so they can add even more new loans to their portfolios. The problem comes when the unsuitable borrowers can't repay.

Maybe Bernanke is trying to project confidence when he makes these statements. But when reality is at odds with what he says, that confidence evaporates.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.

With stunning swiftness, the damage from the collapse of the subprime mortgage market is bleeding out to other parts of the economy. And that damage will explode on Monday as investors continue to flee the sector.

How so? Because late Friday afternoon, according to the Wall Street Journal [subscription required] two subprime lenders dropped several bombshells that have left them fighting for their lives:

• New Century Financial Corp. (NYSE:NEW), one of the largest subprime lenders, is facing a federal criminal inquiry into its accounting and trading in its securities. Furthermore, if NEW's lenders don't let it off the hook for meeting the terms of its lending contracts or it does not find new lenders, NEW stated that its auditors are likely to warn of "substantial doubt" over its ability to remain in business. Translation: NEW could go bankrupt very soon.
• Fremont General Corp. (NYSE:FMT) will stop making subprime residential loans and is negotiating to sell that business.