Thursday, June 11, 2009
Blankfein has 20/20 Hindsight
Lloyd Blankfein, CEO of Goldman Sachs, told a conference yesterday that using fair value accounting might have prevented the credit meltdown. Duh! Ya think? It is not like the SEC and Bank for International Settlements were not pushing fair value and mark to market, they were. And companies like Reuters and Markit were working like mad finding ways to value those hard-to-price instruments. All of the ingredients were there, what was missing was the will to implement them. Taking risky assets off balance sheet meant that they sat there quietly corroding. Stress tests were only done to the limits of what young, business school graduates considered within the realm of possibility. Fat bonuses meant that the status quo was not questioned from above. I hesitate to bring it up again, but moral hazard risk remains the most dangerous of them all. It led to the problems we are now facing, and has so worried the authorities that they are going to mandate bonus structure. RULES and LIMITATIONS on your bonuses! Look what you've done. Ignore risk at the peril of your paycheck.