Banker blames government for financial crisis

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Print this page 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.

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