Today, fear on the floor of the New York Stock Exchange
as investors worry the country is in the midst
of an economic crisis unlike anything seen in decades.
Markets around the world are coming off the worst week
since the crash of 1929.
In 2020, an unprecedented pandemic
caused a global economic crisis.
Before that, the world also experienced a crisis
in the crash of 2008.
Major investment firms failed,
housing foreclosures skyrocketed,
and millions lost their jobs.
The government played a unique role
in both the cause and reaction to that crash.
Have any lessons been learned?
In 2008, John Allison was CEO of BB&T,
one of the 25 largest banks in the country.
Nobody in my family had ever graduated from college,
and a professor got me very interested in finance.
And that's how I ended up going in the banking business.
I became CEO in 1989.
We were $4.5 billion in assets.
And we had grown to $152 billion in assets
during my tenure as CEO.
Today, Allison is retired as CEO.
He's an author and educator
and often lectures on the lessons to be learned
from the 2008 crisis.
I wish, in a way, I had a more fun subject
to talk about than the financial crisis,
but it's actually a very important subject.
Whether you know it or not, because of your age, I am sure
it had an impact on your family and your family's friends.
It was a dramatic event, a very dramatic event.
And if we draw the wrong conclusions,
we're going to make the same mistakes again.
And the thing that hurt people the most was
in the housing market.
Part of the origins of the crisis
can be traced back to Freddie Mac and Fannie Mae,
a pair of federally created lending institutions.
In the early 1990s, President Clinton demanded
that they start having half their loans
in what was called affordable housing,
now called subprime lending.
And a lot of economists said, wow, that's risky.
With the backing of government lenders
and financial institutions,
banks dramatically increased their number of subprime loans
given to people with low credit ratings.
Soon, it became much too easy
for people to borrow more than they could afford.
Making what the government called affordable housing loans,
which actually were unaffordable to the borrowers,
became a big business.
Risky mortgages. Those loans are expected to cost
2 million people their homes before it's all done.
I shouldn't have even been offered this mortgage.
It's a subprime mortgage.
There's a lifetime invested here.
It's a nightmare.
Predictably, as more money came into the housing market
due to the subprime loans, housing prices went up.
So the prices got so high they had to break.
And when they broke is when the big correction happened.
This morning at the opening bell,
the Dow took a steep dive in what seemed for a time
like near-panic selling.
In 2008, we really needed an economic correction
because we'd overinvested in housing.
What we didn't need was a crisis.
And the crisis was almost totally created by
government's arbitrary handling of problem situations.
Unfortunately, a number of large banks made mistakes,
and if I'd had been in charge, I'd have let them fail,
but the government didn't want these big banks to go broke
because of the cronyism that exists in our economy.
Not since the Great Depression has the federal government
stepped in to help a failing financial institution
in this country the way they did over this past weekend.
For example, the first company that got in trouble
was Bear Stearns.
They were nice people who'd made some bad mistakes,
but they certainly were not critical to the marketplace.
The marketplace was stunned when the Federal Reserve
essentially bailed out Bear Stearns.
And then later on, Lehman Brothers,
which was much more important than Bear Stearns,
got in financial trouble, and they allowed it to fail.
Sunday night, a sign of the extraordinary times
on Wall Street as thousands of Lehman Brothers bankers
packed their boxes.
The market believed that Paulson,
who was Secretary of Treasury,
had a lot of animosity against Lehman Brothers.
These government bureaucrats can just make it up
however they want to make it up.
But how do you deal if there's no rule of law?
And that's what took a correction
and turned it into a crisis.
Government interventions became chaotic.
Wachovia was essentially taken over by the Federal Reserve
and sold to Citigroup.
But everybody in the market knew that Citigroup
was in more financial trouble than Wachovia.
We said this is crazy.
You're selling a bad bank to a worse bank?
How's that supposed to work out?
And a few days later,
they ended up selling Wachovia to Wells Fargo.
They just reneged on a legal contract
they had signed with Citigroup.
They just said, sorry, we're out of it.
The American taxpayer has been asked to take on a big burden
all at once, $700 billion
to shore up a financial system on the verge of collapse.
A lot of people have heard about
what's called the bank bailout.
It's technically called the TARP program.
The reason healthy banks were forced to take TARP is Bernanke,
who was head of the Federal Reserve,
was afraid that if he just bailed out the bad banks,
that would mark those banks.
So he very much wanted the healthy banks to participate
so it looked like a bailout of the industry
instead of a bailout of banks.
And the good banks like BB&T would be painted
with the same brush as the bad institutions.
All banks were forced to take a bailout loan
from the government, whether they needed it or not.
This policy hid which banks
had made poor financial decisions.
In BB&T's case, we didn't need the money.
We had to pay a very high interest rate,
and the net cost was between $50 and $100 million
for money we did not need and did not want.
The myth that deregulation and greed on Wall Street
cause a financial crisis and the government stepped in
and saved the economy is not true.
Unfortunately, government policies
which had good intentions,
you know, like affordable housing,
created very bad outcomes.
When government starts interfering
with market processes,
it often produces very bad results,
even when their intentions sound good.