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Former BB&T CEO John Allison on government policies’ impact on the economy and markets.
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Well of all was silly talk about what cause a financial crisis the silliest and most ill informed -- that bush era.
Now that myth has been shattered in a book written by a man who is a alleged in the banking industry he is John Allison.
Returned to sleepy southern bank into an international powerhouse -- survive the financial crisis with flying colors.
Mr.
Ellison recently left BB&T after twenty years CO to become head of the Cato Institute a libertarian think tank in DC his book.
Is entitled the financial crisis and the free market cure.
And John Allison hedges now what a pleasure and honor thank you for being here thank you go to -- let's start with the notion that it was deregulation.
Of the banking industry that -- a crisis how to respond that's admit first banking industry wouldn't be regulated it was a massive increase in regulation during the bush years it was just miss regular wanna start with sarbanes not Sox right stocks lead the privacy act and and the pay to got a how to people get the idea that there was deregulate there was less regulation of financial institutions is just a myth created by the -- I -- if you look at the numbers of regulatory pages they went up exponentially during the bush years or not they regulate but we have all these these fancy derivatives that were based on the sub prime loans which you know well you have the whole -- shadow banking industry they've -- Consider thrown into the mix by people who spreading this myth is part of the problem.
Well that there -- -- surely some species in the capital markets obviously but they weren't the primary problems and of the total misunderstanding.
Of the derivatives risk must riveted -- he -- -- reduce risk.
And and derivatives market didn't fail.
When they talk about ribs mostly they're talking about esoteric financial instruments that were ball Bob very sophisticated investors that -- they were taken the risk.
Give me an example Harvard endowment had 25% compound return for -- years -- and they lost a ton of money.
In this crisis -- did they were buying risky stuff and it finally column -- was -- the market acted the way shouldn't OK well if in fact instead of having fewer regulations we have more financial regulations during the period leading up to the best.
What caused the mess the big -- by government policy we don't live a free market United States -- live in a mixed economy the financial services industry is the most regulated industry -- and the two primary culprit for the Federal Reserve.
And government housing policy specifically is executed through Freddie Mac and Fannie Mae.
These giant government sponsored enterprises that had -- trillion dollars.
In debt when they went broke and had ten trillion dollars and so probable that we know that we know a lot about the housing crisis and I and and how that it caused this cascade of financial break does what about the bad.
I look at what the Fed is doing now.
At using essentially using taxpayer money I know they say they're private institution but they print money which affects the money that I have in my pocket.
To bail out risky financial institutions I don't care those institutions make risky bets but if they fail I don't want to pay bail -- out.
That they should have been allowed to fail and the Fed is the one that does -- by opening -- discount windows and then and putting money for these guys actually and then of course the Fed really set up this crisis.
In early 2000 Alan Greenspan was hit the figure eighty -- to be that he -- he didn't wanna go that we would have moved.
Economic correction so we created negative real interest right so you could barring money at less than inflation right.
That's spurred people to think they were wealthier than they are today over consenting to the over consumption and housing OK well there was crony capitalism and certainly there are a lot of financial -- -- and others that work with the government.
-- willingly because they'd like to get the free and easy money right I think trying capitalism is a huge from the United States but you know his government gets bigger and more powerful.
Naturally people want -- free -- from the government but one of the charges against you know and BB&T is that you took TARP money we -- about three billion dollars raised story.
You know I'll sadly opposed to talk I was -- -- -- large financial institutions to opposed to talk probably to congress sought.
Glover a couple of others by the way but go ahead -- of large -- I was very outspoken and then when TARP happened we took the money -- is that.
I got a call from our regulator -- is -- classic regulator call where they always make it very obscure which you know they -- and here's what he sits -- look John.
The beginning he's got a lot more capital by our long term capital standards in -- But we've decided to change your capital standards none of these new standards but we don't know what they -- -- -- of these new standards -- -- pretty sure you won't have enough capital lets -- take our.
And and and let you take part we're gonna send an -- -- you.
And and we doubt cabinet camp so in other words they were there were threatening you there is saying lets you take the TARP money we will shut you down and and the reason for that is Bernanke to hit the fitted with an he's a student in the depression.
And in the depression they tried to save individual banks that didn't work to -- MacKey wanted the healthy banks to participate.
To a number of other healthy banks were forced into taking part OK now you've got an impossible task because you only have about the -- -- -- What do we do in thirty seconds that you suggested your book the pure capitalism does it answer how you get there well -- The source of all human progress is that it is our minds and our ability to think created in the union that rightly so what we need is less regulation the ability bond we knew were to create new jobs Bobby -- And and that's the number one -- -- -- things like sound money people -- like economic calculation in the -- print money nearly Willy Nilly.
And of course we need a rational financial plan for the ninth to -- We keep -- been in money we don't have to do you think -- don't need you see any of these candidates are getting close to that.
Well some are closer than others but nobody's we're -- -- -- I think we need a much more dramatic solution of the problem United States is in serious financial trouble 1520 years if we don't change direction.
And we need some courage to really face -- stuff and and be aggressive.
And return America the principles -- my -- -- free market folks on you see why this guy was tapped by the Cato Institute to lead the institution.
Great to see -- John thank you very much commander knows his stuff and has a solution for the future the book is the financial crisis and the free market cure here it is John Allison vessel look at -- thank you thank you.
Well this year's.
