"The Financial Crisis: Causes and Possible Cures"
PDF file of talk slides
John Allison is CEO of BB&T, one of America's largest financial service institutions. Having held that position for 20 years, he offers a unique insider's point-of-view on the recent financial crisis in his talk "The Financial Crisis: Causes and Cures." Not all of his solutions are fully consistent with laissez-faire capitalism, but he none-the-less brings some interesting insights to our current financial problems and his suggestions take a large step in a better direction. Topics covered in the talk include:
The central role the Federal Reserve plays in managing and directing our financial system, and thus the central, fundamental roll it played as the ultimate cause of the current financial chaos.The talk is worth the 80 minute investment of time in order to hear a succinct overview and analysis of how we got here, and this banker's well-informed thoughts on steps that could be taken to get us back on track to financial security and rising prosperity.
How money creation by the Fed is used to fund government spending and in the expansion of the national debt.
How the Fed intentionally lowered interest rates in order to create an environment of low risk. This resulted in distorted signals and incentives which led to both the malinvestment of resources and the discouragement of saving.
How other policies of the Federal Reserve, the S.E.C., the FDIC undermined and destabilized banks by driving the increases in leverage and risk-taking, as well as the depletion of capital--and how these policies remain unchanged today.
The harmful contributions of the rating agencies and fair value accounting (mark-to-market)
The central role of the Fed, the FSLIC, Freddie and Fannie in encouraging and facilitating sub-prime lending which served as the proximate cause of this particular crisis.
The politically-driven misuse of legitimate credit instruments: CDO/SIV/CDO2/CDS
Bailouts: why they won't work; how they hurt healthy banks and stop private solutions
Why short-term pain is now unavoidable, and what strategies and policies might help shorten the correction period as well as work towards long-term stability and growth.
Identification of the underlying philosophy and ideology used to justify and direct government intervention into economic matters.
During the boom, many people made good-faith economic calculations based on price signals distorted by government manipulation of the money supply. Others took advantage of lax lending standards, or committed outright fraud. Both types of borrowers are now suffering from home foreclosures, and we all are suffering from the effects of business bankruptcies and layoffs. For decades, this country has supported active manipulation of the money supply, directly by the Federal Reserve, and indirectly by Congress and the Treasury. The culpability is multifaceted.
Our next task is to orchestrate the transition from a mixed-economy to one of economic freedom. Figuring out how to dismantle the myriad of government interventions without causing more economic dislocation and destruction is not an easy or straight forward task. I understand the temptation to use government power and funding in order to stabilize the housing market, or to mitigate and repair the damage that government policies have caused. But, even in periods of transition, we must attend to the basic principle of individual rights. True solutions can not include any further violations of liberty or property. Even when wielded with intent to heal, such violations can only result in further harm.
Allison's recommendations are a good place to start the discussion, but further refinements must be made if we are to stay true the fundamental principles upon which this country was founded, principles which are both moral and practical: the individual's right to Life, Liberty and Property.