by Robert Powell
The chairman of BB&T Corp. today blamed the policies of the federal government for the national financial crisis.
John Allison told a Virginia Chamber of Commerce group that government regulation and mismanagement resulted in a housing bubble that threatened to wreck the banking system.
Allison’s hour-long talk, “The Financial Crisis: Possible Causes and Cures,” was the keynote address at the chamber’s 2009 Conference on Virginia’s Future at the Richmond Marriott. BB&T, based in Winston-Salem, N.C., is the nation’s 10th largest bank holding company.
Allison’s list of culprits in the financial crisis include: the Federal Reserve, the Federal Deposit Insurance Corp., the Securities and Exchange Commission, and mortgage-finance giants Fannie Mae and Freddie Mac.
Among Allison’s points:
Housing policies set by the Clinton administration in 1999 for Fannie Mae and Freddie Mac prompted many people to buy houses they could not afford.
As a result of the housing bubble, $800 billion was poured into residential real estate that could have been invested in other industries.
Short-term actions by Federal Reserve interfered with “natural” market corrections, creating bigger long-term problems.
Rating agencies badly misjudged the quality of mortgage-backed securities, creating a crisis of confidence in capital markets.
The practice of originating and selling mortgages rather holding them until maturity encouraged sloppiness and fraud.
Fair value accounting, a 2-year-old accounting rule, forced financial institutions to “mark to market,” writing down the value of mortgage-backed securities even though no market for the securities existed during the crisis.
Laws such as the Patriot Act and the Sarbanes-Oxley Act, designed to thwart terrorists and discourage accounting fraud, respectively, have resulted in a “misdirection of management energy.”
To fix the system and prevent future problems, Allison says:
Financial institutions that are “too big to fail” should be broken up into smaller companies.
Markets should be allowed to correct themselves.
Government regulations must be reduced.
Tax rates for corporations and individuals must be lowered.
A tax credit should be created to revive the residential real estate market.
If only he were President, this is right on the mark.
--John of Arlington
Oct. 22, 2009 at 07:37 AM
Allison for President
--Kent of Mt Airy
Oct. 22, 2009 at 10:25 AM
Sorry, but the reason behind this mess was greed and stupidity by the banks, pure and simple!
True, many governments agency that could have reined in this greed failed to do so, but the banking industry caused it in the first place!
The stupidity exhibited by the chairman of BB&T, in trying to point the finger solely at the government, only strengthens my first statement.
And lets not forget that the failure of the Fed, SEC and others happened under the Bush administration!
--Chuck Adams of Richmond
Oct. 22, 2009 at 01:49 PM
Great Article! Way to tell the truth, John. For all you non-thinkers please read Thomas Sowell’s latest book, The Housing Boom and Bust….$16.47 on Amazon.com
--Stan Sweeney of Richmond
Oct. 27, 2009 at 10:42 AM