When it comes to political decisions that reek of “Chicago-style” thuggery, it’s hard to top the Federal Reserve’s decision last week to fail BB&T Bank’s most recent Dodd-Frank “stress test” :
“After flaunting some of the most impressive capital ratios in last week’s Dodd-Frank stress test results, BB&T Corporation (NYSE:BBT) shareholders were stunned to discover that the Federal Reserve “objected” to certain parts of the bank’s capital plan.” (Why the Fed Denied BB&T Corporation (BBT)’s Capital Plan, fool.com, March 14. 2013.)
Given the actual strength of BB&T’s reserves, its well-earned reputation for financial soundness, and the shock with which this news was received by the market, what should the reader make of the Fed’s decision? It doesn’t take a genius to recognize it as a politically motivated hatchet job — and specifically, as political payback for former BB&T CEO John Allison’s truth-telling in his book, The Financial Crisis and the Free Market Cure.
Allison’s brilliant expose on the subject — drawn from decades of expert personal experience in the banking industry — should be required reading for any American who dares to think he has a clue about what caused the financial crisis. If you haven’t read it yet, then you owe it to yourself to do so as soon as possible.
This is a book that I CANNOT recommend strongly enough. In it, Allison demonstrates, in exacting detail, precisely how government misregulation, not “Wall Street greed,” was in fact the core cause of the crash. And he explains how new regulations introduced to deal with a crisis of the government’s own making are putting the US economy at risk of an even greater crisis in the future. I’m currently finishing my second time through it, and I’ll probably need a third reading to digest and integrate the wealth of facts it presents. It is that good.
So given this context, the obvious question becomes: what political goal is accomplished by “failing” the “stress test” of a bank whose financial position is so clearly superior to government standards that the market was “stunned” by the Fed’s decision? To use an already overused aphorism: “If it walks like a duck and quacks like a duck, it’s a duck.” This is a naked attempt to discredit now Cato Institute president Allison‘s critique by smearing the institution he led for decades — an institution whose whose well-deserved reputation for financial soundness is in fact one of the strongest pieces of evidence for the accuracy of that critique.
For more evidence, consider marketwatch.com’s story on the same subject (BB&T, Ally fail Fed stress tests, March 14, 2013):
“BB&T’s BBT +0.51% capital was above regulatory thresholds but its dividend and stock buyback plan was rejected based on an qualitative assessment of its capital planning process. The Federal Reserve did not explain what specifically was the problem at BB&T.” [sic, emphasis added].
No, of course they didn’t “explain what was the problem at BB&T.” And that, ladies and gentlemen, is the kind of regime that America unwisely re-elected to power in 2012.