Rescue” Plan from a Healthy Bank’s Perspective

South Carolina Conservative ^ | 9/24/2008 | John Allison, President & CEO of BB&T

[Dixie Yooper]

This one came across the desk this morning. It’s a portion of letter going out today(9/24/2008)from John Allison, President & CEO of BB&T, to every member of the US Congress.

Key Points on “Rescue” Plan From A Healthy Bank’s Perspective

[Dixie Yooper]

1. Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.

2. There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.

3. While all financial intermediaries are being impacted by liquidity issues, this is primarily a bailout of poorly run financial institutions. It is extremely important that the bailout not damage well run companies.

4. Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom. It is important that any rules post “rescue” punish the poorly run institutions and not punish the well run companies.

5. A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed “rescue” plan.

6. This is a housing value crisis. It does not make economic sense to purchase credit card loans, automobile loans, etc. The government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.

7. The guaranty of money funds by the U.S. Treasury creates enormous risk for the banking industry. Banks have been paying into the FDIC insurance fund since 1933. The fund has a limit of $100,000 per client. An arbitrary, “out of the blue” guarantee of money funds creates risk for the taxpayers and significantly distorts financial markets.

8. Protecting the banking system, which is fundamentally controlled by the Federal Reserve, is an established government function. It is completely unclear why the government needs to or should bailout insurance companies, investment banks, hedge funds and foreign companies.

9. It is extremely unclear how the government will price the problem real estate assets. Priced too low, the real estate markets will be worse off than if the bail out did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?

10. The proposed bankruptcy “cram down” will severely negatively impact mortgage markets and will damage well run institutions. This will provide an incentive for homeowners who are able to pay their mortgages, but have a loss in their house, to take bankruptcy and force losses on banks. (Banks would not have received the gains had the houses appreciated.) This will substantially increase the risk in mortgage lending and make mortgage pricing much higher in the future.

11. Fair Value accounting should be changed immediately. It does not work when there are no market prices. If we had Fair Value accounting, as interpreted today, in the early 1990’s the United States financial system would have crashed. Accounting should not drive economic activity, it should reflect it.

12. The proposed new merger accounting rules should be deferred for at least five years. The new merger accounting rules are creating uncertainty for high quality companies who might potentially purchase weaker companies.

13. The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The decision to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.

14. Arbitrary limits on executive compensation will be self defeating. With these limits, only the failing financial institutions will participate in the “rescue,” effectively making this plan a massive subsidy for incompetence. Also, how will companies attract the leadership talent to manage their business effectively with irrational compensation limits?

[XHogPilot]

Democrat fingerprints are all over the financial crisis

[arichtaxpayer]

My son is a finance manager at a large car dealership. He said that getting money for financing is not a problem. Banks have raised their standards in order for a customer to get a loan, but according to him ‘only where they should have been all along’.

[Freedom'sWorthIt]

Pray! Pray today like never before - pray for God’s mercy and wisdom and power in the decisions being made today.

[Auntie Mame]

Wow, this brings up a whole lot of interesting points. Thank you for posting.

[CE2949BB]

For those that don't know about BB&T:

John Allison, CEO and Chairman of BB&T, has explicitly incorporated the principles of Objectivism into its management -- an illustration of the fact that the (properly) moral and the practical go hand in hand.

Source: http://www.objectivism.net/

For more information, check out the "Philosophy" section of their site.

[wastoute]

another bump 4 l8r

[Iron Munro]

Paulson and his congressional backers have made sure that the bailout still applies to foreign firms too.

I heard one congressman on FOX this morning estimate that Paulson’s approachh will mean that up to one half of the bailout money ends up in the pockets of foreigners.

There is no reason to think that this is anything more than a scam to save the fortunes of Paulson and his circle of investors on the back of American taxpayers.

[Terry Mross]

The calls to congress is now running about even. I know this is true ‘cause Blunt said it was. (sarcasm)

I’m mailing my next credit card bill to the White House with a letter saying “My neighbor down the street is getting his house paid for by the government. I’m a little short this month so I need you to pay this bill for me. If you don’t it’s just going to get worse and before long you’ll have to be asking for more money from congress”.

[TruthConquers]

Pray! Pray today like never before - pray for God’s mercy and wisdom and power in the decisions being made today.

Amen

[HokieMom]

BB&T bump

[supercat]

There is no reason to think that this is anything more than a scam to save the fortunes of Paulson and his circle of investors on the back of American taxpayers.

The most cost-effective bailout would be to start prosecuting people for fraud and throwing them in prison. That would do much more to inspire confidence in the markets than anything else the government could do.

[Iron Munro]

"...start prosecuting people for fraud and throwing them in prison."

Let's get started!

[supercat]

Let's get started!

Actually, I was just thinking of an even better idea. From what I understand:

1. Many of the most thoroughly bogus MBS's were sold overseas (since anybody in the U.S. who'd heard the ads touting $300,000 NINJA loans would stay away).
2. Foreign governments are very unhappy about the swindle the U.S. government has allowed people to pull on them.
3. On a somewhat different matter, foreign governments are rather annoyed that we seem to think it's okay for us to send people into other countries to pursue its enemies, but we bristle when people from other countries enter the U.S. to do likewise.

Do you see how #3 might fit in with #2?

If someone sold $10,000,000 of bogus MBS's to a Chinese investor, and the Chinese government regarded that person as a criminal, would there be any reason for the U.S. to fight extradition?