Association urges maintaining accounting rules

NARRAGANSETT – The newly formed Rhode Island Hedge Fund Association chimed in last week on the financial industry turmoil.
The group – founded by financial advisor Michael G. Riley, of Narragansett, who also serves as the association’s president – issued a news release last week urging regulators not to revise allowable accounting practices so banks could value their assets differently.
Some congressmen and business executives have suggested that that the fair-value rule be suspended because auditors have been valuing bank assets such as securities at extraordinarily low prices because of the recent market turbulence. Under normal circumstances, banks have argued, the assets would be valued higher.
The U.S. Securities and Exchange Commission last week issued an interpretation of the accounting standard that some said would provide some relief to financial institutions.
The Rhode Island Hedge Fund Association, whose three directors are actually from New York and Connecticut, opposed suspending the fair-value rule.
“Depositors and investors are entitled to understand the true nature of the stated assets on the balance sheet,” the association said. “It does not serve anyone’s best interest to pretend that assets have not deteriorated over a down cycle in the economy. We find this movement to mislead investors and depositors disturbing and counterproductive.”
The association also lamented the government’s move to prohibit the short selling of some stocks. The strategy has not worked “to support stock prices and have reduced liquidity by forcing many balanced investors to the sidelines,” the association said. “Hedging should be an important strategy in all investors’ portfolios. RIHFA believes that government intervention designed to reduce the ability to hedge unwise.”