Fair’s not fair, says Schwarzman (again)

January 30, 2009

Blackstone Group chairman Steve Schwarzman’s campaign against the evils of fair value accounting continued at a lunch hosted by Credit Suisse today.

He condemned fair value accounting as a “pro-cyclical” concept that “makes no sense”.

“All that matters [in private equity deals] is when you buy and when you sell – at least that was all that mattered before someone came up with fair value accounting,” he said.

He even claimed that Robert Rubin, former US secretary of the treasury and more recently chairman of Citigroup, had turned against fair value accounting, despite being a long-term advocate. Rubin had faxed him apparently (Schwarzman admitted to being a “technical Neanderthal” who doesn’t use a Blackberry) to declare his change of heart.

Warming to his theme and to illustrate his point, he says Blackstone analysed earlier deals to see how they would have fared in the last downturn (2001–2003) if Blackstone had been forced to use fair value accounting.

At the lowest point, he said, the firm’s deals would have lost 70% of their value. “But when we sold those companies, investors made 2.3 times their equity.”

Those investors worrying about more recent deals would have been relieved to hear that none of Blackstone’s companies have refinancings for four years and 60% don’t even have any banking covenants. If only those pesky accountants from the FASB will leave him alone, Schwarzman will no doubt do it again.

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This is disturbing as if fair value is done away, how does one have confidence in the US economy and the Dollar’s real value?

Posted by Dr Jon Tay | Report as abusive