Goldman Sachs’ Blankfein wants Mark-to-Market rule to stay put

February 9, 2009 by · Leave a Comment
Filed under: Opinion 

We completely agree with Mr. Blankfein’s opinion.  Just because people decided to overvalue assets to such excesses does not mean when things don’t go their way, we should abandon our accounting standards to preserve mal-investment.  This just shows that our current banking system is in fact “insolvent” and we have resulted to jiggering with our accounting methods to keep these banks and other financial institutions from going bust.  

We should make everyone come clean with their assets and liabilities ASAP and if you are solvent then we should assist them with taking over the good assets and if your insolvent, then your bond and shareholders takes the losses along with the bad assets.  Yes, we should let bad banks go under.  This is what will bring stability and confidence to the markets.  We are just prolonging our crisis and making it worse trying to bailout bad banks that made bad decisions when they were GREEDY

News:

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said the financial industry shouldn’t abandon the “mark-to-market” accounting rules that some banks blame for aggravating global economic woes.

The rules, which require banks to book profits or losses when asset values rise or fall, should be even more rigorous, Blankfein wrote in an op-ed piece published yesterday on the Financial Times’s Web site. New York-based Goldman’s adherence to the practice “was a key contributor to our decision to reduce risk relatively early” in the credit crisis, he wrote.

“This process can be difficult, and sometimes painful, but I believe it is a discipline that should define financial institutions,” wrote Blankfein, 54. “If more institutions had properly valued their positions and commitments at the outset, they would have been in a much better position to reduce their exposures.”

Legislators are considering changes to accounting rules as they ponder an overhaul of financial-industry regulations amid the worst market crisis since the Great Depression. U.S. Treasury Secretary Timothy Geithner is set tomorrow to unveil President Barack Obama’s plan to restore health to the nation’s banks.

House Financial Services Committee Chairman Barney Frank said last week he’s examining whether Congress should ease the rule, also known as fair-value. The American Bankers Association says it doesn’t work in illiquid markets, and last week General Electric Co. CEO Jeffrey Immelt said banks end up with an “artificial writedown” that forces them to raise more capital. Blackstone Group LP Chairman Stephen Schwarzman said Oct. 30 that fair-value accounting was a “major contributor to the financial crisis.”

‘100-Year Storm’

Regulators should resist a response “solely designed around protecting us from the 100-year storm,” Blankfein wrote. “If we abandon, as opposed to regulate, market mechanisms created decades ago, such as securitization and derivatives, we may end up constraining access to capital.”

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