Long term greedy

7 April 2009 By Rob Cox Follow @rob1cox

That s a stretch. But the Goldman CEO s latest speech and his defence of fair value accounting could yet see him reluctantly stepping out of his firm’s shadow to join a few credible leaders into something like the role Morgan played in steadying the Panic of 1907.

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Lloyd Blankfein, chairman and chief executive of Goldman Sachs, addressed the annual meeting of the Council of Institutional Investors in Washington on April 7. The following are excerpts from his speech:

On H1B visas: Equally significant and using Goldman Sachs as an example, we have approximately 200 employees who are in the US because of the H1B program. But, we have 2,000 employees who are working overseas and pay US taxes. Do we want to invite other countries to take punitive measures against us?

On marktomarket: Lastly, financial institutions didn't account for asset values accurately enough. I've heard some argue that fair value accounting which assigns current values to financial assets and liabilities is one of the major reasons for exacerbating the credit crisis. I see it differently. 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.

On pay: We should apply basic standards to how we compensate people in our industry. Compensation should reflect an individual's ability to identify and create value, including his or her contribution to the client franchise, enhancing the firm's reputation and contributing to the better functioning and efficiency of markets.

"Equally important, compensation should take into account strict adherence to a firm's management and controls, especially with respect to a person's judgment and exercising that judgment in terms of risk in all of its forms. That evaluation must be made on a multiyear basis to get a fuller picture of the effect of an individual's decisions.

On risk: Too many financial institutions and investors simply outsourced their risk management. Rather than undertake their own analysis, they relied on the rating agencies to do the essential work of risk analysis for them. This was true at the inception and over the period of the investment, during which time they did not heed other indicators of financial deterioration.

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