The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy's Only Hope by John A. Allison covers this and other economic myths and misunderstanding such as the “shadow” banking system, fair value accounting, Pick-a-Payment mortgages and the like. However, as interesting as the economic discussion is, the real solution for our financial problems is philosophical and the cure was espoused by Thomas Jefferson in the Declaration of Independence: “Life, Liberty, and the Pursuit of Happiness.”
People on all sides of the political spectrum defend liberty, but few people understand why liberty is essential to human well-being. Government regulations put “balls and chains” on innovators and entrepreneurs and thereby, slow and eventually stop progress. Given man’s nature, socialism and communism are doomed to failure.
Allison demolishes the notion that “deregulation” of the financial industry somehow caused the mortgage crisis. “Financial services is a very highly regulated industry, probably the most regulated industry in the world” (p. 5), he explains; and he proves the point in chapter after chapter, example after example.
In chapter 4, for instance, Allison reviews how federal regulators, motivated by flawed studies alleging to show discrimination, forced banks to issue riskier loans. He shows that regulators interpret and enforce their rules selectively—depending on political pressures, their own incentives, and the perceived short-term health of the economy—and how they block or encourage mergers as they see fit.
In chapter 8, he explains that the federal government approves a select few rating companies and that these few utterly failed to foresee the impending risks. Part of the problem, says Allison, is that the SEC compelled these rating firms to be “paid by issuers—bond sellers, not bond buyers,” creating “serious conflicts of interest” In chapter 9, Allison points out that FDIC deposit “insurance” encouraged “pick-a-payment” mortgages that helped put countless homeowners “under water” in their homes.
In chapter 11, he discusses how the SEC-sanctioned Financial Accounting Standards Board imposes absurd accounting standards that cause banks to act irrationally. And in chapter 13, he discusses such intrusive and destructive federal regulations as the Privacy Act, Sarbanes-Oxley, and the Patriot Act. “Government regulations,” summarizes Allison, “suck the energy and will of the best and brightest” (p. 147) while rewarding the incompetent and irresponsible.
Another organizational problem is evident in chapter 23, which is supposedly about “How the United States Could Go Broke.” In addition to inexplicably devoting the chapter’s third paragraph to foreign policy, Allison devotes most of the space not to the entitlement programs and massive spending that are breaking the country, but to the problems of leftist ideology in the universities and ineptitude in government-run K–12 schools.
Most of these flaws are writing issues, which could and should have been caught by an editor. And, fortunately, the general content of the book is good enough and important enough to warrant high recommendations and wide readership nonetheless. The fact that Allison is primarily a banker, not a writer, is precisely what makes his book so valuable. Whereas others cite examples from newspapers, interviews, and the like, Allison offers lengthy descriptions of how his own bank acted to weather the financial storm, and of how he and other bankers were coerced and cajoled by government regulators.
More details about this book...
0 comments:
Post a Comment