John Allison’s book, The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope, skewers the federal government. Allison’s main themes throughout the book are:
1. “Government policy is the primary cause of the financial crisis
2. “Government policy created a bubble in residential real estate
3. “Individual financial institutions made very serious mistake that contributed to the crisis
4. “[Government action] will reduce our standard of living in the long run
5. “The deeper causes of our financial challenges are philosophical, not economic
6. “If we do not change direction soon, the United States will be in serious financial trouble in 20 to 25 years.”
Allison, currently the president of the Cato Institute, a libertarian think tank, finds it almost incredulous that “somehow…businesspeople can continue to innovate and create wealth despite the ball and chain of government regulations.”
A successful BB&T CEO for two decades, Allison slams the regulators as ineffective and inefficient, only knowing how to impose rules resulting from laws like the Troubled Asset Relief Program (TARP) that healthy banks that BB&T never needed in the first place.
If the U.S. were able to adopt a more free-market system, the country could have avoided the 2008 financial crisis altogether, Allison argues. If government agencies such as the Fed or Fannie Mae or Freddie Mac never interfered in the American economy, the banks would have corrected themselves on their own. But because the government was so deeply involved in their affairs, many financial titans thought they had the backing of the government regardless of their financial health. When Bear Stearns was bailed out by the government, others thought they could fail and get bailed out. Lehrman Brothers and others such as Washington Mutual were not so lucky.
BB&T was solvent, more conservative and averse to the risky mortgages and securities that brought down other banks. It stuck to its principles, advised its clients not to spend more than what they had and to avoid overspeculation, while other banks encouraged this reckless behavior. Even though BB&T was solvent and stable, it was “encouraged” (or forced) by government bureaucrats to become a part of TARP and restructure itself.
Allison, who taught at Wake Forest, gets straight to the point about the causes behind the 2008 financial crisis. He goes into as much detail as he can, without confusing or boring the reader, and is an honest writer who expresses his opinion as such, based on his experience. It is a refreshing read for those sick of political infighting and partisanship and Allison presents solutions of how to fix the flagging American economy: free-market economics.
Spencer Irvine is a staff writer at Accuracy in Academia.
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