Billionaire Steve Schwarzman couldn’t stop hammering the Dodd-Frank Act.
At the Bernstein Thirty-Second Annual Strategic Decisions Conference 2016, the Blackstone Group chairman and CEO discussed issues ranging from Brazil’s economic growth to distressed energy companies in the US.
Among his biggest concerns was the impact of regulations.
Here’s Schwarzman (emphasis ours):
What’s happening during that period is the junk bond market just went on sabbatical when illiquid. So, for all of you Dodd-Frank lovers, here’s what happens when you have a commitment to regulation and reform, and you don’t quite understand all of the implications. So, when they passed the Volcker rule, there were 25 firms making markets in junk bonds. Guess how many there are now. Five. That’s 25 to 5. Triumph? You decide. OK. So, what happens when things get difficult, that market now just locks up. That is not healthy for the capital markets. And this is happening all over. It’s when you get almost all the market makers out of doing market making, right? So, it affects the treasury market. It affects all markets, and liquidity is coming down because we mandated that to make the world safer. This does not make the world safer by the way. This is not encouraging the world to be safe because when people need to sell, and there isn’t liquidity, what happens? They sell something anyhow, and so you develop these odd outcomes, right?
In 2010, Congress passed the Dodd-Frank legislation intended to discourage risky behaviour and avoid another financial crisis. Part of the law — the “Volcker rule” — restricts banks’ abilities to speculate in markets and invest in private equity funds. Some blame the new regulations for killing market liquidity, as higher capital requirements limit Wall Street’s ability to step in to buy securities as prices drop. We’ve seen some arguments about this phenomenon in the bond market.
The regulation also required private equity firms with more than $150 million in assets, such as Blackstone, to register as investment advisors, which are subject to annual examinations. There have been arguments over whether private equity firms deserve a break in collecting deal fees in the future.
Blackstone, which manages $310 billion in total assets as of first quarter this year, is an established brokerage unit. Last October, the firm paid a $39 million fine after the SEC found that Blackstone charged excessive “monitoring” fees, which are paid annually by the companies owned by the private equity firm.
“We’re so overregulated as a country that we just crushed our productivity,” Schwarzman said. “That’s temporary because it’s reversible if anybody politically chooses to reverse it. If they wanna accelerate it, good luck.”
This isn’t the first time Schwarzman threw a fist at government regulations.
In an op-ed article for The Wall Street Journal published last June, Schwarzman argued that Dodd-Frank and other regulations like the Volcker Rule are setting us up for the next financial crisis.
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