Media Contacts
Kathy Valentine
+1 (434) 227-2177
kathy.valentine@cfainstitute.org

 

 

Investors Overwhelmingly Agree: Fair Value Should Not be Suspended and the Bailout Plan Will Help the U.S. Economy

 

New York, September 26, 2008 – The results of a CFA Institute member poll (3,130 respondents) released today indicate that investment professionals strongly support the U.S. Treasury’s bailout plan as the best means of responding to the current economic crisis, and that fair value accounting should not be suspended. CFA Institute is the global association for investment professionals.

 

“The results of this survey coupled with the results of another member survey on the cause of the subprime crisis strongly demonstrate that investors are not willing to give those who were careless or negligent with mortgage-backed securities a pass with looser financial reporting standards or turbocharged executive pay,” said Kurt Schacht, CFA, managing director of the CFA Institute Centre for Financial Market Integrity. “On the prospects of a government bailout plan itself, clearly tough times call for tough decisions; our members recognize the need for prompt action. Sorting out the blame and moral hazard issues will be addressed in due course. For now, investors demand these unprecedented actions come with strings attached on transparency, compensation, and financial reporting. Only when this happens will investor confidence start to improve.”

 

"The support for the bailout likely reflects the belief of our professional members that our policy makers, being closer to the underlying data, are doing what is needed to provide system wide stability," said Jeff Diermeier, CFA, president and CEO of CFA Institute. “The support for the package, however, is combined with concern that there should be some accountability for the current situation. The industry too must play its part by adopting an ethical perspective as ultimately our global financial system is best protected by those in the industry who put their clients and their professional priorities ahead of short-term business priorities. Without adopting this ethical perspective every day we put our regulators in a continual position of playing catch-up.”  

 

Anonymous comments from some survey respondents include:

• “Let those who gained from the excessive leverage bear the losses for their recklessness and their mistaken judgment.”
• “The system must maintain its integrity and as such, an "honest" price must be employed. This implies deeply discounted prices; more so than the banks have reflected on their balance sheets.”
• “The SEC's arbitrary implementation of short-selling rules, with no public comment and no warning for market participants to prepare, was the first step toward obliterating ‘free’ markets. The bailout of banks would be another big step down that slippery slope. It's funny how the same investment banks that don't want to mark their illiquid assets down to market value insist that we, as their clients, value our illiquid assets at market value when it comes time for margin calls.”

 

CFA Institute Survey Results

 

1. Do you support the bailout plan overall as the best alternative to the serious crisis facing the U.S. economic system?

2. Do you support the temporary suspension of short-selling in a broad range of financial-related stocks?

3. Do you think a better alternative to the temporary suspension of short-selling would be implementing the up-tick rule? 

 
4. Do you support the government guarantee of the US$3.4 trillion money market deposits in the United States? 

 
5. Do you support the creation of a US$700 billion liquidity pool using taxpayer funds to buy the illiquid subprime, mortgage, and other derivative securities from the troubled financial firms? 

6. Should the package include limits or oversight on executive compensation for the firms accessing the liquidity pool?
 

7. Should the requirements for fair value accounting be suspended so firms do not have to write the value of these derivatives down to a current market value? 

8. Should the government pay a value other than fair value for the illiquid subprime, mortgage, and other derivatives securities?