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Wednesday, 11 March 2009

20/20 hindsight is a wonderful thing

The CEO of Blackstone Group LP, Stephen Schwarzman said yesterday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half. This is absolutely unprecedented in our lifetime."

U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion. "In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage ... so that we can get more money back into the banking system," Schwarzman said.

He expects the private sector to end up making "some good money doing that," but added there were complex issues on how to price toxic assets. He put part of the blame for the financial crisis to credit rating agencies. "What's pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," he said.

Rating companies have been the focus of intense criticism for their role in granting top "AAA" ratings for complex bonds that later plummeted in value, resulting in subsequent rating cuts, in many cases to junk status.

"Once you bought into ... the Triple A paper and it turned out to be paper that was in many situations going to end up defaulting, then you really had the makings of a global problem," he said. Schwarzman said problems were then exacerbated by mark-to- market accounting rules. Those rules ask banks and other financial institutions to price assets at a value related to how they would be sold in the open market.

All good stuff, but Blackstone reported a quarterly loss in February after writing down the value of its portfolio and eliminated its fourth-quarter dividend, so Schwarzman is only being wise after the event.

Any fool can do that.


Demetrius said...

And according to William Buiter, and others, at the moment the US Treasury is off duty because so few senior positions have been filled, and it will be weeks or months before they are.

Jonathan Russell said...

Alex, who are you?

I don't think you are the Telegraph cartoon character whose identity you have adopted.

I think we should be told...

Jonathan Russell
Telegraph city diary editor

Alex said...

Jonathan, I am what it says on the box, but not the cartoon character.