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John A Crisis and PDF #180 Allison is the longest serving CEO of a top financial institution having served as Chairman of BBT for twenty years He currently serves as President and CEO of the Cato Institute and as a disti. The Financial Crisis and the Free Market Cure How Destructive Banking Reform Is Killing the Economyby John A Allison 2013 McGraw Hill a short book report by Ron Housley I had the good fortune to hear John Allison deliver a lecture several years ago and I was stunned by the scope and detail he was able to bring together into one unified talkHe establishes his credibility right out of the shute by deftly integrating varying aspects of his subject into a readily understandable whole He has total command of the tiniest detail and he at once has the total concomitant command of all the governing principles He may very well be the Steve Jobs of banking And now he has written a book Stop and catch your breath for a moment An early chapter the one entitled What Happened will give you a great example of Allison s rapid fire but sweepingly comprehensive style of sharing his account He does it with no teleprompter You will witness the perspective of a player Allison himself who is able to assess the contribution to a problem of a vast myriad of input factorsTake for instance the 2008 financial crisis where the Fannie Freddy story reads like a thriller with tones from The Big Short at every turn In spite of all the New York Times stories during the housing bust of 2008 an important but obscure and largely unaccepted fact remained Freddy and Fanny had amassed liabilities in excess of 55 Trillion they had practically no assets at times they operated at a 1000 to 1 leverage ratio It was 100% a government creation and the NYT blamed free market capitalism for the bust When the Wall Street Reform Act was signed into law in July 2010 we saw a frightening spectacle the authors of the reform bill were the SAME politicians most responsible for the bubble in the first place Dodd and Frank themselves It is a delight to witness how Allison assembles the relevant facts together in support of a point he is a master And one of the primary points that he makes is that systemic failure of the financial markets can occur ONLY as the result of government policy FANNY AND FREDDY Did you knowFanny Freddy got into the subprime business under pressure from the Clinton administration They were created to support the mortgage industry s loan origination business but wound up taking over that business for themselves It is one story of how an enormous enterprise grew up right under the noses of clueless Americans and ultimately contributed to the destruction of wealth of those many clueless millions from coast to coast Even today most American voters do not know what happened or is happening to their life savings MARK TO MARKET Did you knowAllison s is the only clear explanation I ve ever heard of mark to market accounting which was the subject of endless sound byte reporting back a few years ago Allison s punch line is Fair value accounting is inconsistent with this concept that business be valued as going concerns because it effectively assumes that the businesses s assets are being liuidated under stress p104 I had not realized how important the forced accounting methods were in contributing to the 2007 2009 economic downturn the bureaucrats in charge finally relaxed their irrationality in April 2009 allowing the downward spiral to endMr Allison s own experiences with BBT are sprinkled in for us a common theme turning out to be How could we know what random and destructive policy actions government policy makers would take next pertinent at nearly every level of economic decision makingAs a corollary to the mark to market accounting debacle there is the story of how it came to be that stock optons were expensed even though they never represented an expense at all It is on par with the attempt of the Indiana State Legislature in the 1930s to legislate pi to be an even 3 point zero 30 When politicians attempt to trump reality reality always wins THE SHADOW BANKING SYSTEM Did you knowNow comes the fascinating chapter about derivitives and what is known as the shadow banking system The MainStreet Media has treated this subject with the same superficiality and misapprehension as they did when reporting on mark to market accounting Among the points entirely evaded are these funding left the commercial banking system due to government rules and regulations that made commercial banking less competitive The Fed bailed out the money funds creating the illusion that they are not a risky investment Freddy and Fanny basically drove commercial banks out of the traditional prime home mortgage business Derivitives which the MainStreet Media loves to decry are mostly instruments to reduce risk and their use as speculation is seen only on the fringes when a company prepares itself for bankruptcy the process can be handled without crashing the financial system but Lehman Brothers did not so plan because it expected to be bailed out those in charge of bailouts were mostly from Goldman eg Sec Treas Hank Paulson is a large Goldman shareholder and they hated Lehman Brothers an organized bankruptcy of eg AIG parent company could proceed without disrupting financial markets the AIG bailout was essentially a redistribution of wealth from taxpayers to holders of Credit Default Swaps essentially Goldman Sachs the contribution to the crisis of Bernanke inverting the yield curve is almost never discussed by the MainStreet Media instead the media keep telling us that Bernanke is an expert BAILOUTS Did you knowIn the end Allison asks Was saving Goldman and AIG about SYSTEMIC risk or about crony capitalism p129 I don t recall the Wall Street Journal or the New York Times framing the uestion uite that way at the time Instead they kept telling us that our government had to infuse billions in order to prevent total economic catastrophe and so Americans swallowed hard and accepted it but they did not understand itAllison laments that Goldman is an advocate of special deals from Washington and is not an advocate of free markets If the USConstitution were enforced crony capitalism would not work because the politicians and bureaucrats would hot have the authority to hand out favors to their friends p129 REGULATION Did you knowThe conseuences of the Dodd Frank bill are clear ait makes US firms less competitive bit drives resources out of the US cit reduces job creation dit lowers US standard of living Nowhere in the press do we see any such analysis Again Americans swallowed hard and accepted it but they have not understood it In his final lament about the bailouts Allison shares with us The reward for running a good business is to have your worst competitors bailed out by the US government and then to have massive new regulations that punish your company for sins it did not commit p130 Mr Allison uncovers the MYTH that deregulation caused the financial crisis that myth is put to bed once and for all MARKET CORRECTION Did you knowOften an UNDERSTANDING comes about as the specific result of how an explanation is framed In his discussion of MARKET CORRECTIONS Allison frames another view of what happened in 2007 09 He says p159 that instead of accumulating capital to invest in technology or manufacturing that the US was CONSUMING residential real estate on a grand scale At the same time the massive federal Stimulus spending allocated on consumption vs production While citizens tried to save the politicians dramatically reduced savings for investment by spending on consumption This is said to be the real tragedy of the 16 trillion debt WHAT HAPPENED Did you knowWe are treated to a devastating indictment of Bernanke and Paulson their decisions were random and dishonest p 164 Even a 60 Minutes expos would be hard pressed to design a presentation capable of engaging the average American citizen the average American appears to have issues with basic thinking skills on far less complex issues Their verdict on Bernanke and Paulson should have been they are incompetent and dishonest a perfect storm for a financial crisis It seems that a nearly total absence of honesty and objectivity lay behind the financial crisis but since an underlying understanding is several abstraction layers deep most people eg the Average American voter do not take the trouble to grasp what happened Instead they have been taught to go along with what the authority figures say with the pronouncements of regulators and politicians This is an IMPORTANT book which answers ALL of the false and misleading rationalizations that we hear to justify what the government policy makers have done to us It is a treasure troveHow many Americans believed BushBernankePaulson when they asserted that not passing TARP would lead to another Great Depression They injected fear and the masses went along with it But what really happenedTARP Did you knowOr take a peak at an insider s view of the TARP scandal TARP as with Dodd Frank proves harmful to healthy banks than to companies that should have failed TARP was a curse for the healthy companies because it kept irrational competition in business A notable example Citigroup a company which malinvested itself into bankruptcy THREE 3 times and each time was bailed out by the government allowing it to become bigger and worse next time That s so basic a point but I don t recall the discussion ever gracing the pages or airwaves dominated by the MainStreet MediaHISTORY Did you knowThe other discussion that we don t hear about is the history of the 1920s vs the 1930s In the early 1920s there was a severe economic correction which was over uickly because the government did not interfere the correction was deep but it ended uickly By contrast in the early 1930s the severe economic contraction then was sustained for an entire decade because the government implemented massive regulations massive taxes and massive spending TARP turned out to be just another way for government to do all threeWe are reminded of another historical comparisona one result of the Great Depression was to scare Americans away from stocks for a uarter of a century stocks didn t regain 1929 levels until 1954b today s crash happened as Americans suddenly realized that housing is consumption and not investment will it similarly be a uarter of a century before housing returns to the pre crash pre 2008 levelsBANKING SYSTEM CURES Did you know We get a glimpse of an entire culture in its death throes Then Mr Allison lays out the prescription for our return to economic health but sadly we can expect NONE of his recommendations to ever gain the attention or respect of those in power conseuently we can brace ourselves for an incredibly destructive crisis in the next decade or two Those in power are smart enough to grasp that Allison s achievable set of steps would work but they want to hang on to their power instead The American voter not only won t grasp Allison s assessment he won t even try to grasp it ever The Dodd Frank reform bill offered by those in power as a solution actually worsens the situation ait gives government protection to the too big to fail companies virtually ensuring their ongoing risky behaviors bits Durbin amendment is little than government mandated redistribution of wealth from bank shareholders and customers to large retailers and cit gives power to the Fed and bank regulators power to the very entities that created the crisis in the first place In the end what it comes down to is stable money is the foundation for long term prosperity p 189 But what the current crop of policy makers gives us the exact opposite Their every decision takes aim at our long term prosperity their ever increasing regulations their ever increasing taxes their ever increasing spending The scope and breath of Mr Allison s coverage paints the terrifying picture of how fast our country is moving from two and a half centuries of prosperity into the uagmire of a regulatory welfare state where we must brace ourselves for unprecedented hardships and unprecedented loss of personal freedomsWhy are Americans so content when the rule of law is jettisoned as long as it is to benefit a union Why are most Americans so comfortable with implementing policies which have always failed in the pastHow can all this be you ask It is all possible says Allison because of philosophic ideas at play here As with Yaron Brook s book Allison also makes the case that what we really face here is a philosophic moralethical battle he contends that the financial crisis is most basically the result of philosophic ideas not economic ideas He speaks of the ideas which predominate in American universities today and which are responsible for the creation of our teachers our journalists our politicians Even today s indoctrinated students might concede that we cannot indefinitely consume than we produce But hampered by today s philosophic pragmatism they are never able to develop an action plan based on such a principle because the dominant philosophy denies that there is any permanent truth ie principles to go by In today s universities it is acceptable even fashionable to be thought of as pragmatic Students in the humanities are proud to be pragmatic proud to claim no principles When a whole nation of voters is pragmatic they will vote for a candidate pledging not to reform entitlements even when those entitlements are leading directly to bankruptcyWhen we combine philosophic pragmatism with altruism we get a veritable witch s brew We get a uest for euality of outcome along with the Orwellian notion that justice means getting what we do NOT deserve We get an entire Administration that thinks that justice consists in creating euality by hobbling the most ableWe get a Congress blithely shepherding the country into the nightmare of a utopian tyranny where monetary stability is sacrificed so that the hoards can have free stuff We get a country on the brink but where the citizenry is unable to see what s happening to them We get a citizenry voting to move faster in the same direction In Allison s book we get a dose of clarity to clear the fog which heretofore comprised our understanding We get to see just how close we are to global upheaval to a US decline into 3rd world status to civil unrest to union violence like in Greece to barbarians at the gate Allison dares us to look at 1920 Argentina which at the time had a standard of living eual to the US Then it plunged itself into statism via taxation redistribution and loss of individual rights It became a 3rd world economy for decades all mediated by the morality which condemns selfish America s own decline may have developed slowly starting with Teddy Roosevelt s and Woodrow Wilson s progressive disrespect for the Constitution But today it has accelerated to a frightening pace the incredible march of the regulatory state p 259The teachers the journalists and the politicians have attained a frenzy of utopian idealism destroying individual rights expropriating wealth oblivious to the cost in prosperity and standard of living Our intellectuals and politicians are willing to sink a nation into 3rd world status if that s what it takes to achieve the evil of making everyone eual Why do they do it They do it because they have bought into the philosophy of altruism reuiring us to sacrifice ourselves until everyone is reduced to euality That is what they mean by social justice Mr Allison s book demonstrates that they do not have economic ideas on their side but they are winning because of their promotion of philosophic pragmatism along with altruism Their philosophy is winning on the national stage And since the Republicans mostly agree with their basic philosophic positions about what is needed for social justice a reversal of direction back toward freedom and individual rights does not seem likely to come from the Republicans The real challenges are philosophical not economic p252 but in order for better philosophic ideas to get a hearing the bad economic ideas must be swept awayBrace yourself and arm yourself with the knowledge in this book

review ↠ PDF, DOC, TXT or eBook ☆ John A. Allison

The Financial Crisis and the Free Market Cure

Nguished professor at the Wake Forest University Schools of Business He is also one of the lead spokespersons for banking and policy reform today appearing at universities and business groups nationwide and serving The F. I read 90% of the free sample which I think is enough to review the book based on the author s main idea as stated in the first chapter and what he blatantly left out Based on what I read very early in the book the author basically blames the entire financial crisis on the US Government I admit that the US Government has done some really stupid and harmful things and is still doing such things and in fact nearly all of the stupid and harmful federal laws are still on the books I would say that probably half the blame for the financial crisis should be on the US Government I would say the other half of the blame should be on the banks For a 20 year chairman of a gigantic bank to ignore that is basically self serving nonsense It is beyond the pale I can think of at least four reasons right off the bat why the banks are to blame liar loans illegal alien loans subprime mortgages and ARMsIn case the author is not familiar with the term liar loans he knows the term no doc loans That was where the bank wanted to make as big a loan as the borrower wanted in order to make as much profit as possible The bank would basically say to the borrower how much money would you like to borrow tell us that and what you think your income should be to ualify for that or whatever your income actually is whichever is higher and we will pretend that is your income with a wink and a nod and without any documentation of your actual income I have spoken to people who took out liar loans so I know they existed and I know many of them defaultedAs for illegal alien loans whatever you think of illegal aliens it is probably not a good idea to make a 30 year loan to someone who can be deported at any time No doubt many of those loans defaultedWe all know what happened to subprime mortgages They turned into an unmitigated disaster of courseAs for ARMs the bankers were gung ho to push those onto any borrowers who would take them without explaining the complex terms They basically had three payment options maximum minimum and somewhere in between The in between payment was an interest only payment If you paid that all your payment options would be the same amount next month The maximum payment was interest and principle If you paid that all your payment options would be a lower amount next month because the principle decreased The minimum payment was like an interest and negative principle payment and was only supposed to be used for temporary financial emergencies because it would cause next month s payment options to increase in cost The bankers never explained that They just basically said you can make any one of these three payments so of course most people just paid the minimum and their payments increased every month That turned into another unmitigated disasterBecause the bankers just wanted to originate as many loans as possible and then dump ie sell them bad loans became the problem of whoever bought them ie everyone else

John A. Allison ☆ 0 characters

Inancial eBook #230 on the board of directors of the Ayn Rand Institute He received a Lifetime Achievement Award from American Banker and was named one of the decade’s top most successful CEOs by Harvard Business Revie. The book does a very good job in explaining the advantages of the free market model as opposed to crony capitalism Goldman Citi et alIt dispels a lot of myths related to the supposed deregulation of the financial markets On the contrary finance and banking are one of the most regulated industries in Western Europe and the US And indeed it was regulation and state intervention that caused the Great Recession I am giving it 45 because the author has the unfortunate tendency to go into long rants against leftist elites environmentalism liberal education and the usual scapegoats one usually sees on Drudge Nevertheless a solid book

10 thoughts on “The Financial Crisis and the Free Market Cure

  1. says:

    I wrote this review about Dec 2017 and very briefly edited it several times the last being 23 Sept 2018This is one great bookThere are so many misconceptions of what caused the 2008 financial crisis great recession

  2. says:

    rating 365This book provides a great discussion on the topics of regulation and how politics and naive intentions influence banking It's great to read an insider's view of what went wrong in the banking industry during the crisis Allison was a super successful banker who also studied a lot on the topic of free enterprise and capitalism His criticisms of the industry are very insightful even if too simplified at times I s

  3. says:

    The Financial Crisis and the Free Market Cure – How Destructive Banking Reform Is Killing the Economyby John A Allison ©2013 McGraw

  4. says:

    This book was written by John Allison who served as the CEO of BBT Bank for many years and helped that company to grow into one of the largest and most successful financial institutions in the country His knowledge insights and years of experience working within the financial industry and with the government agencies politicians and bureaucrats form a solid basis from which he lays out a clear and compelling case for the causes of the fin

  5. says:

    It was a decent read but got a little meandering and unfocused at about 23 in If you're looking for a great technical analys

  6. says:

    I read 90% of the free sample which I think is enough to review the book based on the author's main idea as stated in the first chapter and what he blatantly left out Based on what I read very early in the book the author basically blames the entire financial crisis on the US Government I admit that the US Government has done some really st

  7. says:

    The book does a very good job in explaining the advantages of the free market model as opposed to crony capitalism Goldman Citi et alIt dispels a lot of myths related to the supposed deregulation of the financial

  8. says:

    John Allison does an impressive job of explaining the complex issues surrounding the United States' financial crisis He uses everyday examples to help explain banking the monetary system and how politics have come

  9. says:

    Having been in business for 25 years much of which was in senior management I found this book the most credible explanation of the fin

  10. says:

    Allison’s garbled and rambling prose freuent non seuiturs and maddening red herrings get pretty grating after about two chapters As someone