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Banking

What’s fair value in foul markets?

As Euromoney asks for his views on fair-value accounting, the European bank chief executive carefully sets down his fork in the plate of scrambled eggs before him, slumps back in his chair and rolls his eyes. The press relations lady squirms uncomfortably and leans across the breakfast table, whispering: “This bit is going to be off the record.”

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Lloyd Blankfein, Goldman Sachs:

Lloyd Blankfein, Goldman Sachs: Disagreed with IIF on making to market

The CEO says: "The management of accounting rules today is a scandal. It is as if the ayatollahs are running the world and imposing their own theoretical values. These are both highly pro-cyclical and non-economic. By insisting on running mark-to-market accounting through the profit and loss, we are living in the economy of the instant. There is no attempt to integrate the different time horizons of different types of institutions. If you take a six-month or two-year view on certain assets that may be how you manage your company, but you’ll be reporting for the instant. "So with CDOs for example, if Merrill Lynch sells some of its holdings at a fire-sale price, others will have to take account of that, even if they are under no obligation to sell at the same time in the same circumstances and even if they are prepared to journey across the desert of analysts’ and shareholders’ disapproval because they see cashflows on their CDOs staying current and believe values will be higher in six months or two years.


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