NEW YORK -- Blackstone Group LP Chief Executive Stephen Schwarzman called for greater common oversight of the world's financial system to help extricate it from "the worst financial crisis in recent memory."
In a Tuesday opinion piece in The Wall Street Journal, the head of the big private equity firm said financial systems should be less dependent on rules, and that adherence to rules can get in the way of keeping up with and addressing developing issues in fast-moving markets.
Schwarzman in particular argued that the Sarbanes-Oxley governance act, passed after Enron Corp's 2001 collapse, "has made a fetish of compliance with complex regulations as a substitute for good judgment. This has not made American corporations any more stable or profitable, but it has damaged our competitiveness and weakened our domestic financial markets."
Schwarzman offered a seven-step plan to underlie any system of global financial regulation. The steps include:
1) Creating a common, cross-border set of accounting principles.
2) Structuring financial regulatory regimes across the world's major markets along broadly the same lines. Each country would have a finance minister, a central bank, and a single financial services regulator with a very broad mandate.
3) Making financial statements fully transparent, eliminating nothing. "Off-balance-sheet vehicles that suddenly return to the balance sheet to wreak havoc make a mockery of principles of disclosure," he said.
4) Fully disclosing all financial instruments to the regulator.
5) Giving the regulator oversight over all financial institutions in the markets, regardless of their charter, location or legal status.
6) Abolishing mark-to-market accounting for hard-to-value assets. This, he said, would stop financial institutions from having to suddenly take huge writedowns at "artificial, fire-sale prices," contributing to market instability.
7) Moving to a principles-based regulatory system rather than a rules-based system.
Blackstone, a private equity firm, is scheduled to report third-quarter results on Thursday. Its shares closed Monday at $8.61 on the New York Stock Exchange. The company went public at $31 per share in June 2007, weeks before the global credit crisis began.
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