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New video by John Allison on the financial crisis at AynRand.org

New video by John Allison on the financial crisis at AynRand.org

by David Veksler

View accompanying slides

The media, politicians, and even many businessmen have blamed today’s financial meltdown on capitalism. But in this talk, John Allison—the longest-tenured CEO of a top-25 financial services company—argues that this crisis is a legacy of the government’s anti-capitalist policies.

Mr. Allison uses his unique inside view of the financial services industry to show how massive government intervention into the U.S. economy—from the creation of the Federal Reserve in 1913 to a reckless crusade to encourage home-ownership—laid the groundwork for an unsustainable real estate boom. And he shows how the government’s response to the inevitable bust—a frenzied series of bailouts, nationalizations, and “stimulus” efforts—is only making things worse.

Finally, Mr. Allison explains the underlying philosophical reasons for the crisis, and discusses the immediate and long-term solutions. He shows that capitalism, far from being the cause of today’s crisis, is its only cure.

2 Comments

  1. Although he provides important insights as to the cause and some solutions to the financial crisis, Mr. Allison also calls for more government intervention as a solution. Such intervention is not just unnecessary, but it means further violations of rights and an expansion of government power.

    Most egregiously, in his September 2008 letter to Congress(1), Mr. Allison states that the “government should directly purchase housing assets, not real estate bonds. This would include lots and houses under construction.”

    In the above-referenced presentation(2), he calls on the government buy long-dated Fannie Mae and Freddie Mac bonds for the express purpose of manipulating mortgage interest rates lower (thereby forestalling further declines in home prices).

    He also calls for a $150 billion tax credit to subsidize home purchases.(3) Again, he wants to stop home prices from falling further.

    The first proposal, in particular, would dramatically increase the scope of the federal government’s intrusion in our affairs. Effectively, the government would become our landlord.

    All of the proposals are based on the mistaken economic premise that the government should stop markets from clearing. The fact is, price deflation is part of the cure for the recession. That will allow homes and other property to go people who are financially capable of paying for it.

    Here is a comment I wrote elsewhere that elaborates on the economic fallacy in this thinking:

    “Are subsidies to home buyers to ameliorate home ‘deflation’ necessary or even beneficial? In economic terms, homes should clear at whatever price level our admittedly impaired market determines. Deflation as such is a good process that clears out the homeowners who are not paying their mortgages and puts the homes into the hands of those who can afford them. The same reasoning applies to deflation of capital goods such as factories. Bankruptcy is the means by which assets get re-directed into the hands of those who are productive. Mr. Allison’s position is that this process should not apply to homes (or, to be more precise, it should apply only “so far,” with government deciding when it should stop). Others will argue on the same principle that it should not apply to factories, such as automobile plants. There is no end to that chain of reasoning except endless interventions as we are experiencing now.”

    Sources:
    (1) See Point 6 at:
    http://74.125.47.132/search?q=cache:QJG7EFp_D1YJ:media.gatewaync.com/wsj/pdfs/2008/09/allison.pdf+allison+letter+to+congress+bb%26t&hl=en&ct=clnk&cd=2&gl=us

    (2) See slide #38 of the presentation accompanying Mr. Allison’s talk.

    (3) Slides #32-37.

  2. Yeah, he wants govt intervention instead of ending the interventions. He’s a CEO, so he has to argue for what will benefit his organization.

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