Suspending mark-to-market accounting would improve the credit system, Robert Reynolds, chief executive of Putnam Investments, said today.
“Balance sheets are being artificially hit when they should not be,” he said in a speech to the 150 members of the Greater Boston Chamber of Commerce in Boston. “Mark-to-market makes no sense.”
The rule requires financial firms to report the valuations of securities based on current market values, but it should be replaced with old-fashioned methods, Mr. Reynolds said.
Another priority is the banking system. “We need to clean out the plaque clogging the arteries of our nation’s banks,” he said.
This may involve a stronger Troubled Asset Relief Program and nationalization of institutions, “but you would want the government to take it over for as short an amount of time as possible, and then turn it out for privatization,” Mr. Reynolds said.
He called on the banking industry to increase lending and find ways to slow the foreclosure rate. “And legislators should support banks in doing that,” he said.
While government support has been crucial, companies should not be able to ask for more money without a recovery strategy in place, Mr. Reynolds said. “I hope we won’t keep these zombie companies on federal life support for years on end,” he said.
Concerning American International Group Inc. of New York and the automobile manufacturers, Mr. Reynolds said, “Absent a plan of telling us how [they] are going to get out of this, let them go.”
The crisis of confidence in the United States requires President Obama and Congress to act decisively, but prudently, Mr. Reynolds said. “This is an FDR moment to lead a country,” he said. “You need to show leadership and that is vastly missing at this point in Washington. I worry that our political leaders will overreact and over regulate.”