Taken Aback

I was taken aback by this statement from Stephen Schwarzman in the opening of his Wall Street Journal op-ed:

After the financial crisis, a focus on safety and soundness was good medicine for the financial system. New bank liquidity and capital policies, among other initiatives, strengthened a debilitated patient. The banking system is now stronger, with more liquid assets and better underwriting standards.

Despite good intentions, however, politicians and regulators constructed an expansive and untested regulatory framework that will have unintended consequences for liquidity in our financial system. Taken together, these regulatory changes may well fuel the next financial crisis as well as slow U.S. economic growth.

The problem with U. S. banks was never one of liquidity but of solvency and that’s the big question now. Are the big banks solvent? Or do they still hold a lot of worthless paper which, if they were compelled to get rid of, would reveal just how insolvent they are? If they are solvent, Fed policy is even harder to understand than it is.

The balance of the op-ed is an attack on Dodd-Frank and bank regulation more generally. I’d have a lot more sympathy with that point of view if the big banks didn’t have a certainty founded on experience that there isn’t much they could do that they won’t be indemnified against.