Stephen Schwarzman, the co-founder, CEO and chairman of
“Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half,” Schwarzman told an audience at the Japan Society. “This is absolutely unprecedented in our lifetime.”
But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy.
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.
Blackstone reported a quarterly loss in late February after writing down the value of its portfolio and eliminated its fourth-quarter dividend.
Asked where was a good place to invest, Schwarzman said it made sense to buy cyclical names, which are less exposed to the economic cycles.
He said investors also may find value in debt products, including “senior layers of certain securitizations,” where investors can see 15 percent to 20 percent returns, he said.
Geographically, he said there were “pockets of strength” in China, which is committed to getting to an 8 percent growth level, and in India, where the economy is slowing but banks are in good shape.