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Lloyd Blankfein Does Fair Value

Thumbnail image for buffet-and-blankfein.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
It’s official, I’m sick of hearing “experts” weigh in on fair value. After my anti-PCAOB rant earlier this week, I thought I’d heard all there was in terms of the fair value argument.
Leave it to Goldman Sachs’s fearless leader to pull this little rabbit out of his hat and shock the shit out of me. In a Financial Times op-ed earlier this week, Blankfein doesn’t directly toot Goldman’s horn, though anyone who knows the lotion in a sock trick might recognize this as a blatant jerk-off.

For a man whose institution lurks in the cesspools, erm, dark pools, Blankfein is awfully incredulous as he criticizes both regulators and institutions for slacking on their valuations. GS calculates the fair value of their positions daily? Christ, no wonder they’re making buckets of cash.

It is not enough even that all exposures be identified. An institution’s assets must also be valued at their fair market value – the price at which willing buyers and sellers transact – not at the (frequently irrelevant) historic value. Some argue that fair value accounting exacerbated the credit crisis. I see it differently. If institutions had been required to recognise [British sic] their exposures promptly and value them appropriately, they would have been likely to curtail the worst risks. Instead, positions were not monitored, so changes in value were often ignored until losses grew to a point when solvency became an issue.
At Goldman Sachs, we calculate the fair value of our positions every day, because we would not know how to assess or manage risk if market prices were not reflected on our books. This approach provides an essential early warning system that is critical for risk managers and regulators.

FT’s own John Gapper even gets in on the Goldman fapfapfap, defending their practices as not exactly illegal, just really, really clever.

Its run of success since its 1999 initial public offering has not been based on “pump and dump” broking but on sticking obstinately to the institutional, less-regulated elite end of the market.
One rival Wall Street executive describes Goldman (with rueful admiration) as “a bunch of clever thugs”. He means that Goldman has been tough about seizing profitable opportunities even if that involves, for example, bidding for an asset against a former client.
Whatever Goldman is doing to make money, it works.

Crack dealers and prostitutes also make a lot of money but that doesn’t make it right. Just sayin.