Mark-to-Market Debate » Address to Congress

Broderick Credits Mark to Market for Goldman Sachs Success

admin — Fri, 16 Jul 2010 12:00:02 +0000

In his prepared statement to the Senate Permanent Subcommittee on Investigations, Chief Risk Officer of Goldman Sachs Craig Broderick explained how Goldman Sachs believes in a rigorous mark-to-market value assessment.
The central tenet is our daily discipline of marking all of the firm’s financial assets and liabilities to current market levels. We do so because we believe it is one of the most effective tools for assessing and managing risk, providing the most transparent and realistic insight into our risk positions and associated exposures. Goldman Sachs is one of the few financial institutions in the world that carries virtually all financial instruments held in its inventory at current market value, with any changes reflected immediately in our risk management systems.
Chief executive Lloyd C. Blankfein foreshadowed Broderick’s remarks in his own opening statement, “We believe that strong, conservative risk management is fundamental and helps define Goldman Sachs.”
During the contentious session, Mr Broderick credited Goldman’s risk management and mark-to-market accounting for minimizing its CDO losses in 2007-08.
This is an appropriate application of MTM. MTM for trading firms only. MTM disclosure for investors/banks/insurance. The accounting for investors should be different for traders and broker/dealers.

Mr. Berg Goes to Washington

Brian Battle — Fri, 27 Mar 2009 12:50:34 +0000

On Wednesday, Rich Berg testified as an expert witness before the United States House of Representatives, House Sub Committee on Banking. The subject of the hearing was informally titled, “Mixed Messages”. The Committee was inquiring about credit availability in the US banking system, and whether current regulatory or accounting structures were inhibiting lending.

The first panel called were representatives of the FED, OCC, OTS and SEC. Rich addressed the statement by Tim Long, Director of the OTS and his obervation that lending would not begin, until the securitization market was cured.

Watch Rich Berg’s testimony below.

Rich Berg Testifies to House Committee on Financial Services

James Lorentsen — Wed, 25 Mar 2009 19:41:54 +0000

The House Committee on Financial Services is holding a hearing entitled, “Exploring the Balance between Increased Credit Availability and Prudent Lending Standards”. The morning session included testimony and question and answers from the top regulators from the Federal Reserve, FDIC, OCC, OTS and the SEC.The afternoon session consisted of testimony from various community bankers, representatives of banking organizations and Rich Berg who all discussed how the credit crunch was effecting the market. Rich Berg focused on how the current credit rating system consisting of a single letter grade is hard coded in investment policies, regulatory policies, and counterparty agreements and is limiting credit. This single letter grade is exaggerating the risk of multiple-obligor securities removing all the natural buyers of the securities and further depressing the market prices. This also takes away market incentives for new securitizations.

Full testimony from all witnesses is posted on the House Committee on Financial Services website. Please read Mr. Richard S. Berg’s testimony to the committee - final witness on Panel Two.

Download the transcript here.