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Stephen Schwarzman: Bank Bashing Could Destroy The Economic Recovery

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One of the world's richest people is once again claiming that bank bashing is preventing the industry from fully recovering -- and even from lending.

Writing in the Washington Post today, Stephen Schwarzman, founder of the Blackstone Group, argues that it is both unfair and dangerous to blame banks alone for the financial crisis.

The economic recovery, Schwarzman writes, depends on the free flow of credit, particularly to small and medium-size businesses. But that credit, he argues, can literally be scared away. Instead, Schwarzman says, if banks feel "under siege" -- and if any impending regulatory reform remains uncertain -- banks just won't lend. The public's anger is contributing to the banks' extreme caution, argues Schwarzman:

"If, as a result of this anger, credit becomes unavailable, particularly for small and mid-size businesses, in the amounts needed to fuel economic growth and job creation, then at best the economy will slow and, at worst, we will find ourselves in a dire situation, to which we all will have contributed. We need sobriety, rationality and civility in the discussions on the regulation of financial institutions so that the banks can return in a robust manner to their central role in funding the economy."

(Yes, you read that right. To Schwarzman, bank lending, at least in part, depends on how nice we are to them.)

But not only is public anger at Wall Street a potential threat to the economy's recovery, Schwarzman writes: it's also partly inaccurate. A number of parties -- including ratings agencies, Congress, the Fed, regulators, Fannie and Freddie -- share the blame for the crisis, he says.

Schwarzman's Op-ed echoed statements he made in Davos last month, when the billionaire defended Wall Street banks, which he said he feared were "feeling insecure" and "attacked":

"My biggest concern is that, as a result of either proposals or tone, that financial institutions are going to feel under siege and their going to retreat with their extension of credit. There is enormous uncertainty, not so much in the economic environment, but we've also increased the uncertainty from the political environment directed at the banks. And there is a really good probability that banks, starting in the U.S., but also on a broad basis may start to restrict credit simply because the uncertainty and the tone against them is so difficult that they may lack the confidence to just start doing their normal function."

Read Schwarzman's Washington Post op-ed here.

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