Bloomberg warns of possible 'next wave' crisis
Truth seems to be seeping out from some surprising places lately...
By DEVLIN BARRETT, Associated Press Writer Wed Sep 17, 7:53 PM ET
WASHINGTON - New York Mayor Michael Bloomberg warned Wednesday a "next wave" of financial pain may come from overseas if foreign entities stop buying U.S. debt.
The billionaire mayor spoke before an audience at Georgetown University, telling them it's not clear who is going to continue buying U.S. debt as financial firms try to cope with a crisis of confidence on Wall Street.
The mayor is scheduled to meet Thursday morning with Treasury Secretary Hank Paulson and Securities and Exchange Commission Chairman Chris Cox.
Before becoming mayor, Bloomberg made a fortune by launching a financial information company that bears his name, and he has more credibility than most politicians on economic matters.
Bloomberg said he was concerned that the credit crisis in the United States may scare off foreign investors that, until now, have been willing to buy debt that the U.S. uses to maintain a deficit.
"It's not clear who's going to be buying our debt," said Bloomberg. "It may very well be that the next wave is going to come back and bite us."
The mayor, a Democrat-turned-Republican-turned independent, regularly criticizes both parties, the Congress, and the White House for what he says is their lack of foresight. He said the current economic crisis is the latest example of the same problem.
"We have on both sides of the aisle, on both ends of Pennsylvania Avenue, thrown caution to the wind. We pay lip service to responsibility," he said, as he sat onstage in an armchair, fielding questions from Georgetown President Jack DeGioia.
Bloomberg had originally planned to give a speech about the economy, but amid the fast-moving events on Wall Street, he scrapped the speech and went with a question-and-answer session instead.
"The systemic problem is we've all gotten into a situation where we want it now, there's no pain ... We keep saying we want to have it, we don't want to pay for it. You can't go on forever not addressing the key issues in this country," like health care and immigration, he said.
Asked about government regulation of the U.S. economy, he said that while some complain it is excessive, the United States has a competitive advantage because in many other countries "you would think that most (corporate financial statements) are just made up."
In fact, just last year the mayor and New York Senator Charles Schumer issued a lengthy report decrying what they saw as overreaching and overly demanding regulation of business.
Back then, Bloomberg and Schumer wrote that enforcement of a 2002 law toughening business reporting requirements "produced far heavier costs than expected (and) has only aggravated the situation," putting the U.S. at a competitive disadvantage with other financial centers like London.
Fast forward to 2008 — and the meltdown of confidence in U.S. financial markets — and Bloomberg had many nice things to say about regulation, including the Depression-era Glass-Steagall Act that separated commercial and investment banking, and was scrapped in 1999. As the modern financial sector has struggled, many Wall Street watchers have suggested resuscitating the old law.
Bloomberg did, though, continue to argue for a reordering of the current regulatory thicket.
"The real world has changed," he said, and old government agencies no longer are equipped to monitor companies that offer a combination of services, like insurance and investments and banking.
"All of these industries, the participants all do the same thing so there's a mishmash and there's too many places for things to slip through the cracks. I don't know that the regulators are asleep at the switch. The structure is not suitable for the real world."