INVESTMENT PROFESSIONALS FAVOR GOVERNMENT INTERVENTION IN FINANCIAL CRISIS

Posted October 15, 2008

NEW YORK – Members of the CFA Institute, a global association of investment professionals, generally favor government intervention to address the current financial crisis, according to a membership poll that drew 5,148 responses.

More than 75 percent of the respondents favor the idea of other governments emulating the UK’s plans to strengthen its domestic banks’ capital base by directly investing in those banks’ equity. Of 3,802 responses to another question, 83 percent believe that governments guaranteeing short-term debts of solvent financial institutions would restore the confidence that institutions need to trade with each other again.

“Our members are encouraged by the strong and varied government actions to shore–up the industry and for financial firms to open their books and tell the truth about the current market value of some key assets,” says Jeff Diermeier, President and Chief Executive Officer of CFA Institute. “The recent G7 and global treasurer meetings are a step in the right direction. However, investors want banks and other public companies to take some responsibility for their excessive risk taking and focus on short-term goals that greatly contributed to this crisis. It is no surprise that banks are not comfortable lending to one another – no one is sure what surprises there are on a firm’s balance sheet. That needs to be addressed promptly and the actions being taken are designed to do just that.”

On a scale of 1 to 5, from not agreeing to completely agreeing, in rating measures for unfreezing credit markets, 46 percent of respondents give a 4 rating to the prospect of central banks working to eliminate insolvent institutions and foster recapitalization of ones deemed solvent. Also, 33 percent give a 4 rating to full disclosure of bank assets, asset valuations and valuation assumptions as a remedy; while 51 percent do not agree that government doing nothing would help unfreeze the markets.