John Allison on the Financial Crisis, Clip 5

John Allison, retired Chairman and CEO of BB&T Corporation, talks about the causes of the recent financial crisis and what we can do to fix it.

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Education

Tags:

• John Allison
• BB&T
• financial crisis
• banking crisis

[randyhelzerman]

@spectator59 hmmm.....seems like you are equating the banker and the employer. If so, I agree, the cases are very different. But I'm not making that analogy; I'm equating the banker and the employee. The banker's assets are mortgages. The employee's assets are his skills. An economic crisis comes, and both suddenly find their assets are worth much less than they thought. Why does Allison think the banker should get a brake while the worker has to "let the market correct" his wages?

[spectator59]

@randyhelzerman In that example, the employer is the buyer/seller and the employee is the product. By firing them, the employer is saying they don't want them anymore. Then another employer says they would be willing to buy the product (the employee) for much less. That would be like the bank saying they don't want this mortgage anymore, and someone coming along and buying it cheap. That's not the case Allison is talking about.

[randyhelzerman]

@spectator59 The job-related analogy is quite real. Literally hundreds of thousands of people are in the situation EVERY MONTH. They are happily employed for $50k, and suddenly, due to economic considerations they are laid off . If somebody offers them a job for $25k are they stealing? If they take the job because their wife is sick, are they a willing seller? Honestly, I don't see any difference between this case and the bank case, and I don't understand why Allison does either.

[spectator59]

@randyhelzerman A better job-related analogy would be that you are happily employed for $50K/yr. Then someone comes up to you and says: "I'll pay you $25K/yr for doing the same job". But you don't want to change jobs; you're not a willing "seller". Does that offer now mean you are only worth $25K/yr?

[spectator59]

@randyhelzerman In the case you describe, you are still a willing "seller"; you *want* the job. In the fair-value-accounting case, the bank has no interest or desire to sell the security; they are not a willing seller. Imagine owning a paid-for house. Someone knocks on your door and offers you half what you know it's worth. You say "I don't want to sell." Is the house now worth what that person offered? Might you accuse that person of trying to "steal" your house?

[randyhelzerman]

@spectator59 I mean, it seems like you are kind of arguing for very generous unemployment benefits from the government here. If the government would be happy to pay me what I was making before, for as long as it takes to find another job which payed as well as the one I lost, that would be great, you would be right. Are you saying that only Sweden-style socialist countries have a free market in labor?

[randyhelzerman]

@spectator59 But I can't always do that. Suppose I have a big mortgate + college bills+my wife is very sick and has a lot of medical expenses---and I'm suddenly laid off, I might very well have to take a job which pays $20-30,000 less than my current job, instead of lounging around hoping for a miracle. This happens every day. Would my new employer be "stealing" from me? Of course not. So why does Allison characterize those offers as coming from people who want to "steal" the property?

[spectator59]

@randyhelzerman But you can take your time and find a job that's right for you; you don't have to take the first one that turns up. Allison does not object to a true-value 20% mark-down. He objects to the artificial 50% mark-down that deep-discounters would pay, as well as the accounting risk of future artificial mark-downs. The former comes from a free-market; the latter does not.

[randyhelzerman]

@spectator59 But by that argument there could be no free market in, e.g. employment. After all, I have to eat 3 square meals a day or I'll starve. How could I possibly be a willing seller? If I don't sell my services I'll die!!! What I object to is the double standard here--Allison is perfectly willing to say "let the free market correct the overinflated prices" when it comes to wages, but seems to want to ignore market signals when it comes to houses.

[spectator59]

@randyhelzerman Part of what Allison is saying is that a true free market requires both a willing buyer *and* a willing seller. If you had to dump your house immediately, you wouldn't get as much for it as if you were able to wait for the right time/offer/buyer. In fact, such an action in the open market is called a "distress sale," and the associated prices are well-known to not reflect the true value of the property.