New York (HedgeCo.net) – In a recent op-ed in the Wall Street Journal, Steve Schwarzman warned that the next financial crisis will be one created by the government. The founder of Blackstone cited laws put in place after the financial crisis in 2007-2008 for what he sees as a possible liquidity crisis.
“A liquidity drought can exacerbate, or even trigger, the next financial crisis. Sellers will offer securities, but there will be no buyers,” wrote Schwarzman. One law in particular that Schwarzman called out was the Dodd-Frank law. While he acknowledged that the law has made the banking system stronger, it could also be the source of a problem. Banks have been holding on to more assets as required by the law and as a result the liquidity for stocks and bonds lower than where they were before the law was passed.
Noted economist Nouriel Roubini recently made similar comments, stating that there is a “liquidity time bomb” that will eventually “trigger and bust and collapse”. While Roubini thinks regulations are one contributing factor, one area where Roubini and Schwarzman differ is that Roubini thinks that technology-driven trading could exacerbate the problem.