Tags: Blackstone | Schwarzman | financial crisis | wall street journal

Blackstone CEO Schwarzman: Govt Regulation Will Spark Next Financial Crisis

By    |   Thursday, 11 June 2015 02:25 PM

Blackstone CEO Schwarzman warns that government regulation will trigger the next financial crisis — not the Wall Street antics most of the general public would expect to spark the next economic fiasco.

He warns that new laws enacted the Great Recession are likely to cause a liquidity crisis that could cause the economy to collapse.

“Despite good intentions, however, politicians and regulators constructed an expansive and untested regulatory framework that will have unintended consequences for liquidity in our financial system,” Schwarzman wrote in the Wall Street Journal.

“Taken together, these regulatory changes may well fuel the next financial crisis as well as slow U.S. economic growth.”

“A liquidity drought can exacerbate, or even trigger, the next financial crisis. Sellers will offer securities, but there will be no buyers,” warned the chairman and co-founder of Blackstone, one of the world’s largest private equity firms.

He said while Dodd-Frank legislation has made the banking system stronger by requiring banks to hold more cash or assets that can be easily sold in times of trouble, the regulation does carry unintended consequences.

Since banks are holding on to more assets, there simply aren’t as many buyers and sellers of stocks, bonds and other investments. He cited a Deutsche Bank report that said corporate bond inventories are down 90 percent since 2001.

“Taken together, these regulatory changes may well fuel the next financial crisis as well as slow U.S. economic growth,” he warns.

“Why should we care? Because new capital, liquidity and trading rules are interrelated, and locked-up markets and rapidly falling securities prices will force banks to reduce assets and hoard liquidity in order to satisfy applicable regulatory tests. With individuals suffering losses and companies not able to raise capital, the economy will contract with layoffs, lower tax revenues and pain for middle- and lower-income Americans,” he warned

“Small business owners will be particularly vulnerable because the number of community banks declined by 41% between 2007 and 2013. Recent studies by economists at the Richmond Federal Reserve and Harvard University both concluded that the 2010 Dodd-Frank financial law contributed to this decline. Dodd-Frank has disproportionately burdened community banks, despite their having no role in the financial crisis.”

A recent study from the International Monetary Fund, titled “Rethinking Financial Deepening: Stability and Growth in Emerging Markets,” concluded that the U.S. economy “suffers from ‘too much finance.”

In the U.S. and other advanced economies, IMF economists found the financial sector hinders economic growth.

“The U.S. experience shone a spotlight on the dangers of financial systems that have grown exponentially and beyond traditional banks,” the authors wrote.

“One view is that tighter and more regulation to help safeguard financial stability can hamper financial development,” the authors write. “This study provides a new angle…. Better regulation is what promotes financial stability and development.”

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Blackstone CEO Schwarzman warns that government regulation will trigger the next financial crisis - not the Wall Street antics most of the general public would expect to spark the next economic fiasco.
Blackstone, Schwarzman, financial crisis, wall street journal
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2015-25-11
Thursday, 11 June 2015 02:25 PM
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