A Banking CEO's Perspective

John Allison, President & CEO of BB&T, has written a letter to Congress with a few suggestions about a rescue bill. Among the observations I think are interesting:

1) Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis...the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime)...

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.

14) The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley...