The Letters page in the Financial Times has become quite interesting in recent weeks  On 20 March, the president of the CFA Institute, Jeff Diermeier, defended fair value reporting, i.e. mark to market.

 “Recent market problems stemming from a lack of transparency in subprime lending and securitisations based on such loans have added a new urgency to the debate over fair value. Many who had at least some reservations about using fair value measurement should now understand why the transparency it provides - complete, up-to-date and comprehensible information - is fundamental to the efficient and effective functioning of markets. Those suggesting that subprime and other derivative exposures remain hidden, or that it is “madness” to ascribe some reasonable fair value to them, are in denial.”  While Jonathan Reiss of Analytical Synthesis (quite a name, that) in New York suggests Winston Churchill might have modified his evaluation of democracy to fit today’s financial crunch and say mark to market is the worst system except all the others. Craig Miller writes from Passaic, NJ, to say that a lesson to be learned is that “market participants should not always play with any new financial toy that nobody understands how to use.” 

Finally, on the lingering issue of privatising profits and socialising losses, Robin Healey of London suggests the state does very well from taxing investment bankers. Just the other day I caught a radio report on New York state finance which said the state collects 20% of its entire revenue from financial services – mostly Wall Street. I think in the UK the City’s contribution to total national income taxes is somewhat similar.  

Not bad for a single day’s letters.

Filed under: Technology, risk