Blackstone CEO Steve Schwarzman is convinced the government will cause the next financial crisis
In an op-ed for The Wall Street Journal published late Tuesday, Schwarzman argued that the implementation of Dodd-Frank, as well as other government regulations like the Volcker rule, is creating the conditions for the next financial crisis.
Schwarzman writes:
After the financial crisis, a focus on safety and soundness was good medicine for the financial system. New bank liquidity and capital policies, among other initiatives, strengthened a debilitated patient. The banking system is now stronger, with more liquid assets and better underwriting standards.
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. Taken together, these regulatory changes may well fuel the next financial crisis as well as slow U.S. economic growth.
The basic point Schwarzman makes is one that has been made before.
Because Dodd-Frank, in particular, requires banks to hold more capital on their balance sheet, there is less liquidity in markets.
Said another way, banks now have fewer ways meet investor demand to sell things - bonds in particular - when facing a major change in the character of the market or big client redemptions.
Schwarzman concludes his piece writing that, "No one is looking to jettison the benefits of stronger capital and liquidity requirements," and adds - of course - that a "holistic" review of regulation as part of a "transparent, coordinated" process is needed.
But it's really just about liquidity, which is what everyone else is worried about, too.