Fair Value or Fantasy

General Electric may be answering the question of what happens when we tell each other the truth about asset values, or absent this, when investors begin to suspect the truth.

Driven mainly by fears about its financial division, GE shares have declined by more than half since early January. The reason, according to a report on Bloomberg today is that the company reports only 2% of its assets at prices that approximate market values. And this, the report notes, strikes fear into investors as

“The notion of having 98 percent opaque and 2 percent valued with clarity is something that by its very nature would make investors nervous,” said Robert Arnott, founder of Research Affiliates LLC, which oversees $30 billion in Newport Beach, California and owned 481,201 GE shares as of Dec. 31. “Having some clarity on what the other 98 percent is worth is valuable.”

Not to be outdone in the understatement sweepstakes, GE spokesman Russell Wilkerson responded

We recognize there is a need and an opportunity to do more to improve disclosure and transparency.

Do tell.

If we are ever going to get to the bottom of this mess, we need to at least begin to tell ourselves the truth about balance sheets, particularly in the financial sector.