When the Blackstone Group's Stephen Schwarzman criticizes financial reform efforts like this...Private market participants may have used excessive leverage in some transactions. Regulators permitted dramatic increases in leverage at investment banks, and billions of dollars of debt stayed off some banks' balance sheets. There was failure at virtually every level of regulatory oversight, including, critically, minimal controls over mortgage brokers, who encouraged many subprime borrowers to contract for houses or take out additional loans that they could never afford.
...doesn't it sound like a burglar complaining a robbery was not his fault because the cops weren't watching the house closely enough? Schwartzman seems to forget that regulators permitted these bad actions in response to financial sector lobbying -- it's not like the regulators just up and announced absurd leverage requirements without outside pressure.
His complaints about "uncertainty" in the legislating process are also problematic. I understand that it is very hard for a business to plan ahead in the long-term when they don't know what the law is going to be, but when your industry is intimately involved in lobbying to change the legislation and slowing the process by urging your allies to obstruct or kill reform, you don't get to complain about uncertainty.
Incidentally, no, it's not Fannie Mae and Freddie Mac's fault. Unregulated mortgage brokers held the vast majority of subprime loans.
So is the financial crisis solely the fault of the banks? No, but pernicious financial sector practices drove the crisis forward and were intimately connected with every part of it. The legislation in Congress doesn't punish the banks but focuses on preventing those practices. Even if some people's unrelenting focus on punishing the banks is somehow detrimental to the reform process, those effects are minimal compared to the hugely detrimental lobbying efforts of Schwarzman's colleagues in the banking industry.
-- Tim Fernholz
