Today, a perspective on the financial crisis from John A. Allison IV, former head of BB&T Corp. and current President & CEO of the libertarian Cato Institute.
For the non-specialists in our audience, Mr. Allison’s thesis is, shall we say, idiosyncratic, but his track record at the bailout-free BB&T earns him a degree of license to take a strong position on these matters. A brisk and bracing polemic.
Title: The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope, by John A. Allison
Date: February 9, 2013 (#6)
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Mr. Allison locates the roots of the 2008 financial crisis in a massive credit-driven misallocation of resources into residential housing consumption. He chooses his words carefully here: Mr. Allison views spending on housing as consumption, not investment, contrary to the popular view of housing equity as a form of retirement nest egg.
This misallocation, he argues, has been aided and abetted by the full alphabet soup of federal agencies: the Federal Reserve prints money, and the FDIC, SEC, Fannie Mae, Freddie Mac, HUD, and the FHA generally muddle about, manipulating markets for overtly political ends. (The IRS’s mortgage interest deduction is a key catalyst.)
This policy muddle, Mr. Allison argues, is largely a bipartisan affair, and the Clinton and Bush Administrations’ promotion of the subprime mortgage market through such means as the Community Reinvestment Act is profiled at length in these pages.
It’s a sordid tale, and a great many “streets” beyond Wall Street suffer the sting of Mr. Allison’s lash: Main Street, K Street, and Pennsylvania Avenue, to name a few, not to mention whatever tree-lined boulevards Standard & Poor’s, Fitch, and Moody’s call home. “A plague on all your houses” (literally) is the message here, and frankly speaking, there is blame enough to go around.
Debates over the financial crisis and the Dodd-Frank Act rage unabated, and since the terrain continues to shift daily, accessible surveys for the non-specialist remain relatively rare. Mr. Allison paints a vivid picture that will entertain and enlighten.
That said, I would be remiss if I neglected to note that The Financial Crisis and the Free Market Cure suffers a bit from the sort of “closed system” mentality that plagues many libertarian writings. The black hats and the white hats are here delineated with Manichæan rigor, and the proffered solutions have a whiff of laissez-faire utopia about them. Arguments fall effortlessly into place to form a magnificent (if unrealistic) edifice.
For those who have expressed a preference for less florid prose on this website, that is to say: Don’t expect these policies to be adopted anytime soon, at least until the inauguration of a President Paul (Ron or Rand, take your pick).
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Next: Crisis Economics: A Crash Course in the Future of Finance, by Nouriel Roubini and Stephen Mihm