Hedge fund manager John Paulson says that U.S. attempts to reform the financial sector have failed.
"The financial crisis came about as banks had an excessive amount of leverage and too many risky assets," Paulson told French financial newspaper Les Echos.
"Trying to dictate what banks can or cannot do is not the solution. Instead, they should be made to strengthen their balance sheets to absorb potential losses and to hold fewer risky assets."
|John Paulson (Getty photo)
Paulson said that Europe’s efforts to address economic concerns were worthwhile, especially the Basel III regulation which he described as "much better and more flexible.”
But U.S. financial reform legislation is counterproductive, says Paulson, who describes the 2,000-page Dodd-Frank Act as "an extremely onerous and ill-conceived text that will be very difficult to implement.”
“The reform has essentially been brought about by an emotional reaction resulting in a number of conflicts and doubts."
Banks, says Paulson, “have practically turned off the taps in terms of funding real estate due to the lack of regulatory clarification."
"The private sector is frozen by regulatory uncertainty regarding rights to foreclose. Banks no longer want to grant housing loans as their rights are no longer guaranteed.”
According to Reuters, a recent report Senate report says that Moody's and Standard & Poor's triggered the worst financial crisis in decades when they were forced to downgrade the inflated ratings they slapped on complex mortgage-backed securities.
"Perhaps more than any other single event, the sudden mass downgrades of (residential mortgage-backed securities) and (collateralized debt obligation) ratings were the immediate trigger for the financial crisis," the staff for Senators Carl Levin and Tom Coburn wrote.
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