…The result? Over the Obama years, the Competitive Enterprise Institute reckons, Washington has averaged 35 regulations for every law. In the introduction to its just-released report on how to address this federal overreach, CEI President Kent Lassman puts it this way: “It is time for a reckoning.”…If Mr. Trump really hopes to drain the swamp, says Mr. Hamburger, cutting these agencies back to constitutional size would be a terrific start…There’s a good case that Americans would be better off without most of these departments meddling in our lives and livelihoods, however politically unfeasible this might be. The next best news, however, is that Mr. Pruitt, Dr. Carson, Mr. Puzder and Mrs. DeVos are not beholden to the orthodoxies that drive the rules and mandates these bureaucracies impose… The good news is that Mr. Trump does not have to fight government by regulatory fiat alone. House Speaker Paul Ryan has a raft of legislation that would reassert the authority of the people’s elected representatives over an unaccountable bureaucracy—including a regulatory budget that would limit the costs an agency can impose each year…Even without legislation, there are things Mr. Trump could do. Mr. Hamburger, for example, dreams of a president ordering federal agencies to submit all their rules to Congress for approval. He further believes the stars are in rare alignment for reform, with Mr. Ryan pushing it in the House, cabinet secretaries who appear sympathetic to the cause and a popular mandate against rule from above. “Oddly enough, the danger is that Mr. Trump will not think big enough,” says Mr. Hamburger. “To paraphrase him, the impact of changing the way Washington issues rules would be YUGE—and it would make him a historic and transformative president.””, “Despotism and Donald Trump, The Wall Street Journal, December 13, 2016

“This isn’t theoretical to me. It’s personal. I was civilly sued by the SEC and FDIC for $600+ million, when IndyMac failed during the 2008 financial crisis. All the allegations were completely false. Everything that went to court, I won. All the SEC’s allegations but one (minor one) were dismissed on summary judgment, as a matter of undisputed fact applied to the law. (The one minor one I settled for $80,000, without admitting or denying it, I settled because my counsel told me the SEC would have appealed the court’s other rulings in my favor, adding years and millions to my defense costs.) I denied the FDIC-R’s allegations in my settlement with them and yet they took $1 million in personal funds (not a fine or penalty) from me and “forced” me (with no evidence) to accept a life-time ban as a banker of a federally-insured depository. So I (and my family) know and experienced our arbitrary, unaccountable, unfair, despotic, and un-American federal bureaucracies first-hand. I love that PEOTUS Trump is putting “dogs” in charge of the “federal department of cats” (a cartoon going around right now). That’s the way it should always be, if you want to “drain the swamp” and restore private citizens and their liberties and constitutional rights.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Opinion

Despotism and Donald Trump

Decrying Trump while ignoring the tyranny of the administrative state.

President-elect Donald Trump and Andy Puzder, chief executive of CKE Restaurants, shake hands as Puzdner leaves Trump National Golf Club Bedminster clubhouse in Bedminster, N.J., Saturday, Nov. 19, 2016. PHOTO: ASSOCIATED PRESS

By William McGurn

Guess it depends on what you mean by “authoritarian.”

During the election, Donald Trump was routinely likened to Hitler. The headlines suggest not much has changed.

From the New Republic: “Donald Trump Is Already Acting Like an Authoritarian.” National Public Radio: “Donald Trump: Strong Leader or Dangerous Authoritarian?” The New York Times: “Beyond Lying: Donald Trump’s Authoritarian Reality.” The New Yorker: “Trump’s Challenge to American Democracy.”

What’s striking here is that the same folks who see in Mr. Trump a Mussolini in waiting are blind to the soft despotism that has already taken root in our government. This is the unelected and increasingly assertive class that populates our federal bureaucracies and substitutes rule by regulation for the rule of law. The result? Over the Obama years, the Competitive Enterprise Institute reckons, Washington has averaged 35 regulations for every law.

In the introduction to its just-released report on how to address this federal overreach, CEI President Kent Lassman puts it this way: “It is time for a reckoning.”

Philip Hamburger is a law professor at Columbia and author of “Is the Administrative State Unlawful?” He believes the president-elect’s cabinet selections thus far—Scott Pruitt for the Environmental Protection Agency, Betsy DeVos for Education, Ben Carson for Housing and Urban Development, Andrew Puzder for Labor—may give Mr. Trump a unique opening not only to reverse bad Obama rules but to reform the whole way these agencies impose them. If Mr. Trump really hopes to drain the swamp, says Mr. Hamburger, cutting these agencies back to constitutional size would be a terrific start.

For one thing, almost all these departments are legacies of some progressive expansion of government. While an uneasy William Howard Taft, for example, made Labor its own cabinet office on the last day of his presidency, Woodrow Wilson named its first secretary.

Meanwhile, HUD is a child of LBJ’s Great Society. The EPA was Nixon’s attempt to buy liberal approval for his administration. As for the Education Department, it was a reward from Jimmy Carter for the endorsement the National Education Association gave him in 1976. At the time this cabinet seat was established, even the New York Times called it “unwise” and editorialized against it.

There’s a good case that Americans would be better off without most of these departments meddling in our lives and livelihoods, however politically unfeasible this might be. The next best news, however, is that Mr. Pruitt, Dr. Carson, Mr. Puzder and Mrs. DeVos are not beholden to the orthodoxies that drive the rules and mandates these bureaucracies impose.

Mrs. DeVos, for example, has spent her life promoting school choice, and her husband founded a charter school. It is difficult to imagine an Education Department under Secretary DeVos ever sending out a “Dear Colleague” letter to bully universities into expanding the definition of sexual harassment and then encouraging them to handle allegations in a way that has turned many campus tribunals into Star Chambers. Not to mention making a federal case about bathrooms.

Ditto for HUD. Under President Obama, HUD bureaucrats, under the banner of “fair housing,” have taken it upon themselves to decide what the right mix of race, income and education is for your town—and will impose fines and punishments for communities that resist. Anyone remember the people’s elected representatives directing HUD to impose its ideas of social engineering on the rest of America?

Or take the EPA. Whether it’s some Ordinary Joe running afoul of wetlands laws or the department’s deliberate attempt to destroy the market for coal, the EPA needs more than good science. It also needs some honest cost-benefit analysis about the prescriptions it pushes.

And then there’s Labor. Under Obama Secretary Tom Perez, the department has so overstepped the authority Congress gave it (for example, on its overtime rule) that federal judges have stepped in to block it, notwithstanding the courts’ traditional deference. As an employer himself, Mr. Puzder appreciates the fundamental reality of labor: which is that you don’t help workers by making them too expensive to hire.

The good news is that Mr. Trump does not have to fight government by regulatory fiat alone. House Speaker Paul Ryan has a raft of legislation that would reassert the authority of the people’s elected representatives over an unaccountable bureaucracy—including a regulatory budget that would limit the costs an agency can impose each year.

Even without legislation, there are things Mr. Trump could do. Mr. Hamburger, for example, dreams of a president ordering federal agencies to submit all their rules to Congress for approval. He further believes the stars are in rare alignment for reform, with Mr. Ryan pushing it in the House, cabinet secretaries who appear sympathetic to the cause and a popular mandate against rule from above.

“Oddly enough, the danger is that Mr. Trump will not think big enough,” says Mr. Hamburger. “To paraphrase him, the impact of changing the way Washington issues rules would be YUGE—and it would make him a historic and transformative president.”

Opinion

Not So Risky Climate Business

A new study dismantles the logic of oil and gas ‘systemic risk.’

PHOTO: ISTOCK

Among the many doomsday scenarios floated by the climate-change lobby is a theory that asks: What if an abrupt change in policy strands fossil-fuel resources in the ground, which in turn crashes oil companies and then the global economy? IHS consulting recently released a rebuttal to this “carbon bubble” babble, and the dismantling deserves more attention.

Daniel Yergin and Elena Pravettoni of IHS looked at whether oil and gas assets pose a “systemic risk” to the world financial system, a danger floated by more than a few regulators. No less than Bank of England Governor Mark Carney warned in 2015 that limits on carbon could crater asset valuations and “potentially destabilize markets,” as the damage rippled through insurers and banks with portfolios in oil.

Not so much, says IHS. Oil-and-gas companies are not going belly up in an event similar to the collapse of Lehman Brothers. One reason is that about 80% of the value of most publicly traded oil companies is derived from “proved reserves,” which are projects that will happen within a decade or so. In other words, companies aren’t assuming as assets every drop of oil in the ground that they may or may not be able to develop.

Regardless of forced carbon reductions or temperature spikes, the switch to alternative fuels will take decades. For some perspective, the authors note that the oil industry started up in 1859 but did not overtake coal as the world’s largest energy source for about a century. Barring some technological breakthrough, no one expects oil to be a minority source of energy before 2050. Financial markets and insurance contracts can manage risks as they evolve year-to-year or even day-to-day.

Perhaps the strongest evidence that oil companies won’t blow up the world economy is that they’ve been stress-tested by the recent crash in commodity prices. Some 82 global oil companies burned off 42% of their value between June 2014 and December 2015, or about $1.4 trillion in market capitalization. Yet the report notes that since oil dipped below $100 a barrel in 2014, the Dow Jones Industrial Average has risen 6%.

The panic over climate risk is really a pretext for more regulation. Mr. Carney chairs the Financial Stability Board, an international outfit that exists to flag financial risks and offer itself as the answer. An FSB task force later this month will deliver “guidelines for voluntary disclosure” that could cover assets and risk practices for oil companies as well as their investors. The report will likely be submitted to major country financial ministers for approval.

Mr. Carney and the FSB are playing to climate activists, who want to use such disclosure as ammunition to pound pension and other investment funds to divest from fossil-fuel companies. Mr. Carney has also highlighted the climate-change free-speech probe led by New York’s Attorney General Eric Schneiderman, which is based on flimsier evidence than even Mr. Carney’s conjectures.

The real financial risks are from Mr. Carney’s attempt to turn certain kinds of legal investments into political targets. The political allocation of capital into housing was one of the root causes of the 2008 panic. Let’s not politicize energy investing in the same way.

…but I do have a problem with Mr. Mnuchin claiming that he turned around a “huge economic disaster” and blaming IndyMac management. Let me use a golf analogy to describe the deal Mr. Mnuchin struck with the FDIC. Some years ago, when I was busy running IndyMac, George, a friend who was a former multi-club champion and scratch golfer, once asked me on the first tee, “Mike, let’s make a bet, what’s your handicap?” When I told him “26” (it’s 12 today), he said something like, “That’s ridiculous. You hit the ball a mile. I’ll give you 15 strokes.” Most golfers would understand (see below if you don’t) that my friend George won the bet on the first tee, before a single shot was struck, through “shrewd” (I didn’t care. He did.) negotiation. Mr. Mnuchin struck that kind of deal with the “ding dongs” at the FDIC for IndyMac. As a result, Mr. Mnuchin didn’t have to do anything significant, other than wait and let markets become more rational and utilize the fabulous people, policies and procedures, and systems that were already in place at IndyMac Bank, to service the existing assets and liabilities. And that is pretty much what he did. As far as I am aware, beyond buying a couple of other smaller failed Southern California banks from the FDIC and cobbling their branch network together with IndyMac, he didn’t really build any significant businesses. Mnuchin is not a banker or business operator, like I was. He’s a trader and that’s why he sold OneWest and got out of banking as soon as he could, after the markets recovered and his three year prohibition from selling, that the FDIC demands of buyers so they won’t look too bad, expired. I do have some concern with Mr. Mnuchin’s “connections” to Goldman Sachs and in particular to Mr. Soros (who he worked for after GS) and Mr. Paulsen, who both made huge sums as short sellers during the crisis and then co-invested, at the very bottom of the market, with Mr. Mnuchin in IndyMac. I believe that crisis-era short sellers like Soros and Paulsen and others, drove the market for mortgages, mortgages securities, homes, financial institutions (and other assets and companies) down farther and harder than necessary (well below fair value), and made the economic crisis worse than it otherwise would have been. That is why it was so important for them (and others like the folks in The Big Short) to timely “pair-off” their short positions, before markets rose back to fair value. This crisis-era short selling was never thoroughly investigated by our government or anyone else. For Soros and Paulsen to drive the market down farther and harder than necessary and then for them to be able to buy at the very bottom institutions like IndyMac Bank, on the cheap from the “ding dongs” at the FDIC, seems “fishy” to me? Finally, post-crisis I have likened IndyMac Bank to a well run (the best) hotel on the beach where that tsunami occurred. It didn’t matter that we were well run. The tsunami wiped everyone out, except the Too-Big-to-Fail ones, like Goldman Sachs “hotel”! The government allowed Goldman Sachs and others to become banks almost overnight! GS also got tens of billions in capital from the government and hundreds of billions in financing as a result of the government and its guarantees of the money market funds. And they got the benefits of AIG, Fannie, Freddie, FHA, and the FDIC, all being bailed out by the government. GS and many other TBTF institutions also got the benefits of all The Fed’s easy monetary policies and the government’s expanded deposit insurance and mortgage modification programs. Not-Too-Big-to-Fail IndyMac Bank was given no help from anyone. And unbelievably, despite being a relatively small Southern California thrift, had a United States Senator from New York (with connections to Soros, Paulsen, Goldman, and others) to publicly yell “fire” about us and cause a bank run that resulted in our seizure on July 11, 2008, just weeks after we had met with the FDIC and OTS and they had told us they would support our crisis era survival plan. As far as I am aware, none of this was ever investigated by our government or anyone else. p.s. Ask yourself, why did the FDIC “have to sell IndyMac Bank” as Mr. Mnuchin said, when they had a half-trillion line of credit with the U.S. Treasury and FDIC Chair Sheila Bair said at the time, in The New York Times, that asset prices were irrational? If asset prices were irrational, wasn’t the FDIC’s sale of IndyMac Bank irrational Ms. Bair? In point of fact, every other conservator or trustee (whether it be The Fed, U.S. Treasury, Lehman’s trustee, or foreign governments) other than the FDIC held their financial crisis assets for years, until markets recovered to fair value. I am not saying it is right, but the U.K. government still owns a majority of Royal Bank of Scotland and a significant stake in Lloyds Bank. Read this blog. I discuss this issue several times.”, Mike Perry, former Chairman and CEO, IndyMac Bank

A further explanation of my golfing analogy above, for the non-golfer: A typical golf course has 18 holes of golf and a very good amateur golfer takes on average four strokes, to get the ball from the tee (start) into the hole (finish), each hole. So the average golf course is a Par 72 (18 holes times an average of Par 4 per hole). My friend George was a scratch golfer, which meant he regularly shot Par 72, and therefore had a handicap of zero. I on the other hand had a handicap of 26 at the time, which meant I shot on average 98 (72 plus 26). So, if George and I made a bet for 18 holes of golf and he only gave me 15 strokes (instead of 26), he would shoot on average 72 and I would shoot on average 98 and I would lose the bet by a whopping 11 strokes on average (26 minus 15). In other words, with George’s stroke negotiation on the first tee, it would have taken a miracle for him to lose his financial bet. He could have played poorly and still beat me. That roughly describes the financial deal Mr. Mnuchin struck with the FDIC in buying IndyMac Bank.” mp

Excerpt from: “Steven Mnuchin’s Defining Moment: Seizing Opportunity from The Financial Crisis”, The Wall Street Journal, December 2, 2016:

“IndyMac was the defining deal of Mr. Mnuchin’s career. He knew that the government needed to sell the failed bank—and he played hardball. In an interview Tuesday before word leaked he was Mr. Trump’s choice, Mr. Mnuchin said he is proud of the transformation at IndyMac, based in Pasadena, Calif. “We turned around a huge economic disaster,” he said….Regulators seized IndyMac, foreshadowing a vicious banking crisis. Six months later, Mr. Mnuchin and his investment partners acquired IndyMac with a helping hand from the U.S. government. The deal eventually earned him hundreds of millions of dollars in personal profits. It was the second-largest bank failure of the crisis, surpassed only by Washington Mutual Inc. in September 2008. Federal officials expected to suffer as much as $8 billion in losses from IndyMac. That left regulators looking for someone to take over the bank and mitigate the damage. Speed was essential, since the FDIC was bracing for a wave of additional bank failures. Mr. Mnuchin assembled an all-star cast drawn from his years on Wall Street, including Mr. Soros, hedge-fund manager John Paulson, billionaire Michael Dell’s investment firm and several former Goldman executives, including J. Christopher Flowers. They signed up on the basis that Mr. Mnuchin would personally run the bank, according to people familiar with the matter. By now, he knew that few bidders would be willing to buy all the failed bank’s assets. And he knew he was taking a giant risk. At the end of 2008, Mr. Mnuchin persuaded the FDIC to sell IndyMac for about $1.5 billion. The deal included IndyMac branches, deposits and assets. The FDIC also agreed to protect the buyers from the most severe losses for years. That loss-sharing arrangement turned out to be a master stroke.”

Politics

Steven Mnuchin’s Defining Moment: Seizing Opportunity From the Financial Crisis

Donald Trump’s nominee for Treasury secretary made millions buying failed IndyMac and has résumé at odds with president-elect’s campaign rhetoric

Steven Mnuchin, President-elect Donald Trump’s nominee for Treasury secretary, on Wednesday. The former Goldman Sachs partner made a fortune as a fast-moving, aggressive and risk-taking investor. PHOTO: EVAN VUCCI/ASSOCIATED PRESS

By Rachel Louise Ensign, Anupreeta Das and Rebecca Ballhaus

On a muggy morning in July 2008, hundreds of customers stood outside IndyMac Bank branches in Southern California, trying to pull their savings from the lender, which was doomed by losses on risky mortgages.

Steven Mnuchin didn’t know much about IndyMac as he watched the scenes on CNBC from his Midtown Manhattan office. But he immediately saw an opportunity and began figuring out how to buy the bank.

Regulators seized IndyMac, foreshadowing a vicious banking crisis. Six months later, Mr. Mnuchin and his investment partners acquired IndyMac with a helping hand from the U.S. government. The deal eventually earned him hundreds of millions of dollars in personal profits.

The former Goldman Sachs Group Inc. partner, Hollywood financier and hedge-fund manager now is President-elect Donald Trump’s choice for Treasury secretary. Like other Trump cabinet picks, Mr. Mnuchin has a résumé that is at odds with much of the president-elect’s populist rhetoric on the campaign trail.

Mr. Trump is building a cabinet that combines traditional Republican Party leanings with unconventional elements, including people who made their fortunes by taking big investment risks. IndyMac was the defining deal of Mr. Mnuchin’s career. He knew that the government needed to sell the failed bank—and he played hardball.

In an interview Tuesday before word leaked he was Mr. Trump’s choice, Mr. Mnuchin said he is proud of the transformation at IndyMac, based in Pasadena, Calif. “We turned around a huge economic disaster,” he said.

Mr. Mnuchin, 53 years old, has no experience in government or running a large organization, though he was a campaign loyalist and fundraiser for Mr. Trump. Mr. Mnuchin’s political views are a secret even to some of his associates. If confirmed by the Senate, the defining traits he will bring as the 77th Treasury secretary include a Wall Street pedigree, long relationship with Mr. Trump, and a history of moving fast to seize opportunities that might terrify others.

In the interview, Mr. Mnuchin said the new administration’s goal would be to achieve annual economic growth of 3% to 4%. He said his top policy priorities would be to overhaul the federal tax code, roll back certain financial regulations, review trade agreements and invest in infrastructure.

Mr. Mnuchin is regarded within the Trump transition team’s inner circle as a skilled team player. Mr. Trump’s advisers say Mr. Mnuchin will fuse traditional Republican Party support for lower taxes and less regulation with the president-elect’s populist stances on trade and infrastructure.

“Trump, like Ronald Reagan, would go outside of the box,” Mr. Mnuchin said in the interview Tuesday. He said Mr. Trump won’t hesitate to call up corporate chiefs to lean on them about jobs, factory closures and other matters.

The IndyMac deal will likely be a feature of Mr. Mnuchin’s confirmation process. Sen. Ron Wyden, the top Democrat on the Senate committee that will hold hearings on the proposed appointment, said Tuesday that Mr. Mnuchin has a “history of profiting off the victims of predatory lending.”

Foreclosures on the homes of delinquent IndyMac borrowers sparked protests outside Mr. Mnuchin’s mansion in the Bel Air neighborhood of Los Angeles. The bank, which was renamed OneWest Bank and is now part of CIT Group Inc., is under civil investigation by the Department of Housing and Urban Development for loan-servicing practices.

Donald Trump with Steven Mnuchin, right, and his former wife Heather Mnuchin at a New York social event in 2004. PHOTO: CLINT SPAULDING/PATRICK MCMULLAN AGENCY

CIT said it is “committed to fair-lending and works hard to meet the credit needs of all communities and neighborhoods we serve.”

Mr. Mnuchin, whose father spent his entire career at Goldman, came of age on Wall Street in the 1980s as the business of slicing loans into securities was booming. As a mortgage banker at Goldman, he saw up close ¾the savings-and-loan crisis and efforts by the government to wind down hundreds of insolvent financial institutions.

Colleagues recall Mr. Mnuchin’s ability to quickly weigh the risks involved in particular trades. He made partner in 1994 and oversaw Goldman’s mortgage-trading desk before becoming chief information officer.

Dinner parties

Like other partners, he earned tens of millions of dollars when Goldman became a publicly traded company in 1999. He bought a 6,500-square-foot apartment in a famous Park Avenue building. Messrs. Mnuchin and Trump were soon in the same philanthropic and social circles, attending dinner parties at each other’s Manhattan homes and mingling at the U.S. Open tennis tournament and the Metropolitan Museum of Art Gala.

The reserved Mr. Mnuchin never struck colleagues as a political animal but contributed regularly to political campaigns, records show.

In the interview, he said he has been a registered Republican for “as long as I can remember,” yet he also gave a total of $7,400 since 2000 to Democrat Hillary Clinton’s campaigns.

Mr. Mnuchin donated to the campaigns of Democrats Barack Obama,John Edwards,John Kerry and Al Gore. The only Republican presidential candidate Mr. Mnuchin gave money to was Mitt Romney in 2012.

In 2002, Mr. Mnuchin left Goldman and wound up running an investment fund set up by billionaire investor George Soros. Mr. Soros was a big contributor to the super PAC backing Mrs. Clinton in her unsuccessful presidential campaign this year and has donated to other groups supporting Democrats.

Mr. Mnuchin and two former Goldman colleagues struck out on their own in 2004 with a new hedge fund, Dune Capital Management LP, which received financial backing from Mr. Soros. Mr. Mnuchin soon steered Dune into the business of financing Hollywood films, which began to elevate his public profile. He also was part of a group that lent money to Mr. Trump for a Chicago condominium project.

When IndyMac unraveled in 2008, the images of customers lined up around corners and across parking lots became an enduring symbol of the financial crisis. Federal Deposit Insurance Corp. officials descended on IndyMac’s headquarters on July 11 and shut down the bank.

Homeowners protested foreclosures by IndyMac at a OneWest office in Pasadena, Calif., in 2009. PHOTO: AP

It was the second-largest bank failure of the crisis, surpassed only by Washington Mutual Inc. in September 2008.

Federal officials expected to suffer as much as $8 billion in losses from IndyMac. That left regulators looking for someone to take over the bank and mitigate the damage. Speed was essential, since the FDIC was bracing for a wave of additional bank failures.

Mr. Mnuchin assembled an all-star cast drawn from his years on Wall Street, including Mr. Soros, hedge-fund manager John Paulson, billionaire Michael Dell’s investment firm and several former Goldman executives, including J. Christopher Flowers. They signed up on the basis that Mr. Mnuchin would personally run the bank, according to people familiar with the matter.

By now, he knew that few bidders would be willing to buy all the failed bank’s assets. And he knew he was taking a giant risk.

At the end of 2008, Mr. Mnuchin persuaded the FDIC to sell IndyMac for about $1.5 billion. The deal included IndyMac branches, deposits and assets. The FDIC also agreed to protect the buyers from the most severe losses for years. That loss-sharing arrangement turned out to be a master stroke.

Customers waited for an IndyMac Bank branch to open in Pasadena, Calif., in July 2008. PHOTO: EPA

Mr. Mnuchin threw himself into managing IndyMac, where he became chairman and chief executive of the parent company. He moved from New York to California. To accomplish his goal of a quick turnaround, Mr. Mnuchin needed to deal with IndyMac’s bad mortgages and other assets, a job made easier by the FDIC’s agreement.

Mr. Mnuchin set out to refashion OneWest as a plain-vanilla lender that eschewed the unconventional mortgages that got IndyMac in trouble. It was a major provider of Alt-A loans, a category between prime and subprime that often involved borrowers who didn’t fully document their income or assets.

He began scouting opportunities for OneWest to buy other small lenders. Before long, OneWest had doubled the number of branches that IndyMac had when it failed. OneWest often paid more than other banks for deposits, helping it attract new customers while interest rates were unusually low.

Sharing the losses

Banks often go out of their way to avoid losses, even when borrowers are in violation of loan terms. The loss-sharing agreement took away some of the disincentives, since future losses would be borne partly by the government.

In October 2011, dozens of activists gathered outside his mansion to protest OneWest’s evictions, waving signs and shouting angry slogans. Mr. Mnuchin has said he was rattled, and OneWest agreed to pay for security services at his home.

Mr. Mnuchin said Tuesday it was “unfortunate that anyone was foreclosed, [but] all these loans were originated under previous management.”

In 2013, OneWest had more than $300 million in profits, nearly equal to what IndyMac earned in 2006. It had a loss of $767 million in the first half of 2008.

Mr. Mnuchin’s next step was to sell. He toyed with the idea of taking OneWest public. Then a better option came along. Another Goldman veteran, former Merrill Lynch & Co. Chief Executive John Thain, had taken over commercial lender CIT Group Inc. and was trying to fortify its finances. OneWest was a source of stable deposits.

In July 2014, CIT agreed to buy OneWest for $3.4 billion, a bounty of more than $3 billion, including dividends. Mr. Mnuchin’s take was several hundred million dollars, according to a person familiar with the matter. He stayed on at CIT.

After the sale, newly discovered accounting problems forced CIT to take a $230 million charge.

It inherited another problem from nearly $40 million of loans OneWest made in 2014 to struggling film studio Relativity Media LLC, in which Mr. Mnuchin was a big investor through his Dune Capital hedge fund.

Relativity filed for bankruptcy less than a year later, and CIT struggled to get the loans repaid. A film-financing company that also was owed money by Relativity accused OneWest of getting favorable repayments because of Mr. Mnuchin’s dual roles at the bank and the studio. He declined to comment.

Mr. Mnuchin left CIT amid a management shake-up announced last year, receiving a $10.9 million severance payment. His exit came just as Mr. Trump’s bid for the Republican nomination was gaining momentum. “The timing worked out well,” Mr. Mnuchin told The Wall Street Journal earlier this year.

Before formally launching his presidential bid, Mr. Trump turned to Mr. Mnuchin for advice over dinner. Mr. Mnuchin helped write a tax-cutting plan and tried to rein in some of Mr. Trump’s populist rhetoric, including his vow to not “let Wall street get away with murder,” people familiar with the matter said.

“I don’t think he has negative views on Wall Street,” Mr. Mnuchin said of Mr. Trump in the earlier interview.

When Mr. Trump delivered his victory speech after the New York primary in April, Mr. Mnuchin stood behind him and took photos of the crowd with his cellphone. The next morning, Mr. Trump asked if he would consider taking the role of national finance chairman, an operation that had previously relied largely on Mr. Trump’s own bank account. Mr. Mnuchin agreed.

Mr. Mnuchin had no previous experience in political fundraising and the finance operation endured early setbacks. It eventually got on track.

Mr. Mnuchin, who divorced his second wife in 2014, brought his fiancée, Scottish actress Louise Linton, on the Trump campaign plane, where she got to see a draft of one of his foreign-policy speeches, she wrote in an Instagram post.

Since Election Night, Mr. Mnuchin has been commuting from Los Angeles to New York and has been a regular presence inside Trump Tower as the president-elect works on the transition team.

Mr. Trump’s financial agenda, which Mr. Mnuchin would lead as Treasury secretary, has ignited a broad stock-market rally. CIT shares are up about 13%, increasing the value of Mr. Mnuchin’s stake by about $11 million. It is now worth more than $100 million.

—Nick Timiraos and Damian Paletta contributed to this article.

…The markets now know for sure that if the two fail again they will be rescued by the government. If there is any honesty in budgetary accounting, their borrowings will have to be treated as government debt and added to the deficit. It is unlikely that the Trump administration or Secretary Mnuchin will be happy to add several trillion dollars in debt to the already bloated U.S. debt load. On the other hand, Fannie and Freddie clearly cannot act profitably as secondary mortgage-market players—buying mortgages from banks and others—unless they have a lower cost of funds than the mortgages they will buy. That might be possible with the capital levels that support a triple-A rating, but even the Johnson administration realized that this wouldn’t work. Capital levels that high probably cannot be achieved or sustained without promising investors levels of profitability that are unavailable to mortgage-market participants.Thus, there is only one alternative if Fannie and Freddie are to be “privatized” and still expected to act as secondary market players. As truly private firms, without triple-A ratings, they will able to securitize mortgages through the structured transactions that many banks and others used before the mortgage meltdown in 2008. This is a viable and important business, and needs to be restored, but its capital requirements are modest and there will be many competitors. Most certainly, they won’t have the financial advantages that allowed them to dominate the housing finance market before 2008. Nor will they earn the profits that are exciting the speculators who—on the strength of Mr. Mnuchin’s statement—have been bidding up their shares.”, an excerpt from Peter J. Wallison’s, “A Fannie Mae and Freddie Mac Background Check”, The Wall Street Journal, December 2, 2016

“Think about it…..the federal government structured Fannie Mae and Freddie Mac as private entities, with an implicit government guarantee….so they could fool the American people that the debts we actually guarantee do not include Fannie and Freddie’s trillions, yet allow these entities debts to trade at rates almost identical to U.S. Treasury securities…..isn’t that the leading off-balance sheet “fraud” in the country? Remember many claiming that legitimate private securitization activities of banks and others….approved by accounting standards, lawyers, government regulators, and the market….was a “fraudulent” activity designed to under-report liabilities? The government’s pre-crisis structure of Fannie and Freddie was no different and magnitudes larger. Mr. Wallison, is “spot on” versus The New York Times Gretchen Morgenson, who wrote a similar article this past Sunday and failed to address the fact that Fannie Mae and Freddie Mac’s profits are derived almost solely from its federal government/taxpayer guarantee. In other words, privatizing them roughly as before, would change nothing (the stricter lending standards and higher guarantee fees of today, would erode over time, as they have done in the past under political and special interest pressure) and result in the privatization of profits and the socialization of losses. Let’s never forget that these two entities required almost $190 billion in funds to recapitalize themselves and even with those funds, would have never been able to repay those funds, but for the government (taxpayers) standing behind their unsecured debt and mortgage securities in conservatorship.”, Mike Perry, former Chairman and CEO, IndyMac Bank

A Fannie Mae and Freddie Mac Background Check

Reports of privatizing the government-sponsored mortgage-finance giants are greatly exaggerated.

Fannie Mae headquarters in Washington, D.C. PHOTO: BLOOMBERG NEWS

By Peter J. Wallison

President-elect Trump’s nominee for Treasury secretary, Steven Mnuchin, said on Wednesday that Fannie Mae and Freddie Mac should be “privatized.” This comment sent their share prices soaring, as investors speculated that the two firms will be allowed to recapitalize and return to the mortgage markets as the dominant players they once were.

This outcome is highly unlikely, as a little history shows, and that’s why Mr. Mnuchin’s comment was probably misinterpreted by investors.

As originally conceived during the New Deal, Fannie Mae was a government agency that would borrow funds in the credit markets and buy mortgages from banks and other originators. The idea was that this would provide a secondary market for mortgages, giving lenders the cash to make more loans.

As a government agency, however, Fannie Mae was on-budget and its expenditures added to the deficit during the Vietnam War.

In 1968, accordingly, Fannie Mae was given a congressional charter as a corporation and allowed to sell shares to the public. This permitted the Johnson administration to argue successfully that Fannie should be excluded from the budget. But it also raised questions about whether Fannie could operate profitably without government backing.

As a buyer of mortgages, Fannie could only be profitable if its cost of funds was substantially lower than the mortgages themselves.

The Johnson administration tried to solve this problem by giving Fannie sufficient connections to the government so that, even as a private shareholder-owned firm, it would still be treated by the credit markets as though it was government-backed.

Thus Fannie was blessed with many special connections to the government, including a line of credit at the Treasury, a government “mission” and the appointment of some of its directors by the president. This signaled the markets that it was still implicitly government supported without the explicit guarantee that would put it back on the budget.

The idea worked. The market believed—despite legislative language that stated otherwise—that the government would in fact stand behind Fannie. And when Freddie Mac was given an identical government charter in 1970, creditors were willing to lend to both firms at rates that were close to the Treasury’s own favorable rate. Indeed, they were called “the agencies” by the market, which signaled something government-like.

All this makes clear why Fannie and Freddie cannot be privatized and returned to the markets in the form they were before their 2008 insolvency. The fiction that Fannie and Freddie weren’t government-guaranteed has now been exposed. The markets now know for sure that if the two fail again they will be rescued by the government. If there is any honesty in budgetary accounting, their borrowings will have to be treated as government debt and added to the deficit.

It is unlikely that the Trump administration or Secretary Mnuchin will be happy to add several trillion dollars in debt to the already bloated U.S. debt load. On the other hand, Fannie and Freddie clearly cannot act profitably as secondary mortgage-market players—buying mortgages from banks and others—unless they have a lower cost of funds than the mortgages they will buy.

That might be possible with the capital levels that support a triple-A rating, but even the Johnson administration realized that this wouldn’t work. Capital levels that high probably cannot be achieved or sustained without promising investors levels of profitability that are unavailable to mortgage-market participants.

Thus, there is only one alternative if Fannie and Freddie are to be “privatized” and still expected to act as secondary market players. As truly private firms, without triple-A ratings, they will able to securitize mortgages through the structured transactions that many banks and others used before the mortgage meltdown in 2008. This is a viable and important business, and needs to be restored, but its capital requirements are modest and there will be many competitors.

Most certainly, they won’t have the financial advantages that allowed them to dominate the housing finance market before 2008. Nor will they earn the profits that are exciting the speculators who—on the strength of Mr. Mnuchin’s statement—have been bidding up their shares.

Mr. Wallison, a senior fellow at the American Enterprise Institute, is the author of “Hidden In Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again” (Encounter Books, 2015).

…and instead, through a politically-biased (only Democrats signed the report) Financial Crisis Inquiry Commission, liberal politicians and their lackey’s in the mainstream press/media, inappropriately and solely blamed bankers and Wall Street, falsely alleging that their greed and recklessness was the cause of the crisis. And Senators Bernie Sanders and Elizabeth Warren, the former liberal Democratic politician Phil Angelides, the FCIC Chairman, and others have continually called for more crisis era bankers and Wall Streeters to be jailed, despite extensive DOJ investigations and lack of evidence. And to cement this false liberal narrative of the financial crisis, the Obama Administration’s DOJ, used an obscure civil law and the awesome force of our federal government to coerce tens of billions of dollars in settlements with nearly every major bank/Wall Street and mortgage lender. And yet in all of these settlements, no facts were ever determined (by any court of law) or admitted to by any bank/Wall Street firm…yet the Obama DOJ continued to “spin” their false allegations of greed, recklessness, and fraud in press releases associated with these settlements. These government actions are disgusting and un-American and the facts and history will prove them so.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Key excerpts from “The Admiral Who Took the Fall for Pearl Harbor”, The Wall Street Journal, December 3, 2016: “Following a brief investigation, a presidential commission found Kimmel and Short guilty of “dereliction of duty.” There were widespread calls for the admiral and the general to be court-martialed, and the former commanders were deluged with hate mail and attacked by public figures. The chairman of the House Military Affairs Committee as much as demanded their execution. A retired circuit judge wrote to Kimmel that he was of “no use to yourself or the American people” and should kill himself…In 1944, a Naval Court of Inquiry virtually cleared Kimmel of any failure, let alone dereliction of duty—but once made, the allegations stuck…. In fact, officers in Washington, not the commanders in Hawaii, should have borne the lion’s share of the blame for the surprise at Pearl Harbor. Throughout 1941, Navy headquarters had failed to meet Kimmel’s repeated requests for more reconnaissance planes and crew, which might have made it possible to spot the Japanese strike force as it approached Hawaii. Worse, Washington had failed to pass along intelligence pointing to Pearl Harbor as a likely target—denying Kimmel key data that could have alerted him to Tokyo’s plans. Hesitation and incompetence in the final hours before the attack—not least by Adm. Harold Stark, the chief of naval operations—meant that a last-minute warning didn’t reach Kimmel until eight hours after the attack began….. From the start, Adm. Chester Nimitz, Kimmel’s replacement as commander in the Pacific, thought it wrong to heap blame on his predecessor. In the late 1940s, other admirals began speaking out. Adm. William “Bull” Halsey, winner of several major victories in the Pacific, wrote in his memoirs that none of his peers felt that Kimmel deserved the odium: Instead of besmirching the admiral, the Navy and the U.S. government “should be big enough to acknowledge our mistakes.”…. In 1944, after the Navy inquiry virtually cleared Kimmel, the admiral’s lawyer sent the secretary of the Navy a scathing telegram. “For nearly three years [Kimmel] has borne public blame” for Pearl Harbor, it read. “His treatment has been un-American.” So it has. After 75 years, it is long past time to correct this wrong.”

The Admiral Who Took the Fall for Pearl Harbor

75 years later, the family of Adm. Husband Kimmel—who commanded the U.S. Pacific Fleet in 1941—is still fighting to restore his honor

Smoke billows from the burning USS West Virginia during the Japanese attack on Pearl Harbor, Dec. 7, 1941. PHOTO: EVERETT COLLECTION

By Anthony Summers and Robbyn Swan

On Wednesday, the 75th anniversary of Japan’s surprise attack on Pearl Harbor, many Americans will bow their heads to remember. But for one American family, the date will be one more mournful milestone in a largely forgotten personal drama stemming from the event that brought the U.S. into World War II.

They are the grandchildren and relatives of Adm. Husband Kimmel, who commanded the U.S. Pacific Fleet at the time. After Japan’s attack, Kimmel was singled out for blame and disgrace, along with Lt. Gen. Walter Short, who commanded the U.S. Army’s forces in Hawaii. Kimmel was relieved of his command, costing him two of his four stars, and pressured into retirement. Following a brief investigation, a presidential commission found Kimmel and Short guilty of “dereliction of duty.”

There were widespread calls for the admiral and the general to be court-martialed, and the former commanders were deluged with hate mail and attacked by public figures. The chairman of the House Military Affairs Committee as much as demanded their execution. A retired circuit judge wrote to Kimmel that he was of “no use to yourself or the American people” and should kill himself…. From the start, Adm. Chester Nimitz, Kimmel’s replacement as commander in the Pacific, thought it wrong to heap blame on his predecessor. In the late 1940s, other admirals began speaking out. Adm. William “Bull” Halsey, winner of several major victories in the Pacific, wrote in his memoirs that none of his peers felt that Kimmel deserved the odium: Instead of besmirching the admiral, the Navy and the U.S. government “should be big enough to acknowledge our mistakes.”

Adm. Husband Kimmel, commander in chief of the U.S. Pacific Fleet in Dec. 1941, was relieved of his command 10 days after Pearl Harbor. PHOTO: EVERETT COLLECTION

It was a stunning fall for Kimmel, whom President Franklin Roosevelt had praised earlier in 1941 as “one of the greatest naval strategists of our time.” Kimmel asked in vain for a court-martial at which he could defend himself. He would fight to clear his name, through eight further investigations, until his death in 1968.

The initial commission concluded that Kimmel had failed to confer and cooperate with Short before the attack and hadn’t properly evaluated the gravity of the situation. But Kimmel had liaised responsibly with Short and had prepared conscientiously in light of the information available to him. In 1944, a Naval Court of Inquiry virtually cleared Kimmel of any failure, let alone dereliction of duty—but once made, the allegations stuck.

(In 1944, a parallel Army inquiry gave Short a more mixed verdict: He hadn’t maintained sufficient war readiness, but the Army hadn’t kept him adequately briefed or given him critical information just before the attack. The Army board proposed no disciplinary action.)

In fact, officers in Washington, not the commanders in Hawaii, should have borne the lion’s share of the blame for the surprise at Pearl Harbor. Throughout 1941, Navy headquarters had failed to meet Kimmel’s repeated requests for more reconnaissance planes and crew, which might have made it possible to spot the Japanese strike force as it approached Hawaii.

Worse, Washington had failed to pass along intelligence pointing to Pearl Harbor as a likely target—denying Kimmel key data that could have alerted him to Tokyo’s plans. Hesitation and incompetence in the final hours before the attack—not least by Adm. Harold Stark, the chief of naval operations—meant that a last-minute warning didn’t reach Kimmel until eight hours after the attack began.

From the start, Adm. Chester Nimitz, Kimmel’s replacement as commander in the Pacific, thought it wrong to heap blame on his predecessor. In the late 1940s, other admirals began speaking out. Adm. William “Bull” Halsey, winner of several major victories in the Pacific, wrote in his memoirs that none of his peers felt that Kimmel deserved the odium: Instead of besmirching the admiral, the Navy and the U.S. government “should be big enough to acknowledge our mistakes.”

A congressional investigation after the war leveled no new charges against Kimmel, but the stain of disgrace endured. At the war’s end, Kimmel and Short were the only two senior officers from the conflict not to be retired at their highest wartime rank.

In the 1950s, a push to restore Kimmel’s four-star status by the head of the Bureau of Naval Personnel, Vice Adm. James Holloway, went nowhere. When Kimmel died, he was buried at the Naval Academy Cemetery in Annapolis, Md. His headstone bears not two stars but four—but only because his sons so instructed the stonemasons, and the cemetery’s administrators turned a blind eye.

Thomas and Edward Kimmel, both Navy veterans, devoted their later years to trying to persuade the Navy to rehabilitate their father’s reputation. “The military in them said, ‘You cannot leave a wronged man out there high and dry.’ You do things right. You do things with honor,” said Ginger Herrick,Thomas Kimmel’s daughter.

The first breakthrough came in 1986, when the Pearl Harbor Survivors Association—which then had some 10,000 members—voted for a tribute to Kimmel and Short. In 1990, the group voted in favor of posthumously elevating the commanders to the ranks they had in Dec. 1941.

In 1991, 36 admirals—including four former chiefs of naval operations and 10 former commanders of the Pacific Fleet—signed a petition to President George H.W. Bush urging him to restore Kimmel and Short’s ranks. That year, a bipartisan group of U.S. senators backed the request, but Mr. Bush’s military assistant wrote Kimmel’s sons that doing so “would do no honor to the Admiral and might very well tear the tapestry that time and history have so thoughtfully woven.”

In fact, time had woven a durable tapestry of misinformation around the case. A 1995 Pentagon study concluded that the blame for U.S. lapses at Pearl Harbor should be “broadly shared.” The senators, meanwhile, continued to press the issue. In 1999, Sen. Joe Biden helped to sponsor a resolution to restore Kimmel and Short to their 1941 ranks. Sen. John Kerry of Massachusetts, now the secretary of state, voted for it. The Kimmel and Short matter, Mr. Biden said later, “is the most tragic injustice in American military history.”

In 2000, the rank-restoration measure was included in the National Defense Authorization Act, which passed both the House and the Senate. President Bill Clinton signed the act but left office without taking action on Kimmel and Short.

The admiral’s sons are now dead, but his grandsons Manning Kimmel and Thomas Kimmel Jr. and their families are still fighting. Letters to the Navy Department and the secretary of defense during President Barack Obama’s tenure have elicited two turndowns from the Pentagon. But the Kimmel family still hopes that Vice President Biden will push for action during the administration’s final days.

In 1944, after the Navy inquiry virtually cleared Kimmel, the admiral’s lawyer sent the secretary of the Navy a scathing telegram. “For nearly three years [Kimmel] has borne public blame” for Pearl Harbor, it read. “His treatment has been un-American.” So it has. After 75 years, it is long past time to correct this wrong.

—Mr. Summers and Ms. Swan are the authors of “A Matter of Honor: Pearl Harbor—Betrayal, Blame, and a Family’s Quest for Justice,” just published by Harper.

…Mr. Allison previously has said he would be in favor of getting rid of the Federal Reserve, which he blamed for fueling the housing bubble by driving interest rates too low. He also has said that bank regulations that came out of the 2010 Dodd-Frank Act are too onerous, and proposed significantly raising capital levels as a way to weed out bad banks. He said Tuesday that he knew some of his proposals, such as abolishing the Fed, wouldn’t happen in his lifetime. But Mr. Allison said he still believed a new administration could make changes to curb the central bank’s discretion to set interest rates and its regulatory function… Mr. Allison was unafraid to criticize his rivals or his regulators. In an interview during his final weeks as BB&T CEO, he complained that “til really very recently, we were told over and over that if we just had as good a risk management (model) as Wachovia, then we would do very well.””, excerpt from “An Ayn Rand-Loving Banker Huddles With PEOTUS Donald Trump”, Christina Rexrode and Rachel Louise Ensign, The Wall Street Journal, November 30, 2016

“More truth about the 2008 financial crisis.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Markets

An Ayn Rand-Loving Banker Huddles With Donald Trump

President-elect met Monday with John A. Allison IV, a fierce champion of free markets

John A. Allison IV, seen here in 2012, is former CEO of BB&T Corp. PHOTO: ANDREW HARRER/BLOOMBERG NEWS

By Christina Rexrode and Rachel Louise Ensign

John A. Allison IV built one of the largest U.S. regional banks in the years leading up to the financial crisis. Since then, he has remained a fierce champion of free markets and a vocal opponent of new government regulations intended to stave off the next meltdown.

Now, Mr. Allison may find himself with greater opportunity to influence policy. The 68-year-old North Carolina native met Monday with President-elect Donald Trump. In an interview Tuesday, Mr. Allison said he spent an hour to 90 minutes with Mr. Trump and others, including Vice President-elect Mike Pence and chief strategist Stephen Bannon.

Mr. Allison said they discussed the financial arena and the Federal Reserve. He added that the talks touched on “possibilities” for roles in the new administration, but he emphasized that nothing had been offered and he would have to know more about any potential role before deciding whether he could accept a position.

Until recently the CEO of libertarian think tank Cato Institute, Mr. Allison is a frequent quoter of Aristotle and a devoted fan of author Ayn Rand, who argued for minimal government and self-interest. As chief executive of BB&T Corp., he distributed copies of Ms. Rand’s “Atlas Shrugged” to senior officers and influenced BB&T’s charitable arm to fund classes about the moral foundations of capitalism at a number of colleges.

Mr. Allison previously has said he would be in favor of getting rid of the Federal Reserve, which he blamed for fueling the housing bubble by driving interest rates too low. He also has said that bank regulations that came out of the 2010 Dodd-Frank Act are too onerous, and proposed significantly raising capital levels as a way to weed out bad banks.

He said Tuesday that he knew some of his proposals, such as abolishing the Fed, wouldn’t happen in his lifetime. But Mr. Allison said he still believed a new administration could make changes to curb the central bank’s discretion to set interest rates and its regulatory function.

“The whole cause of the financial crisis has been attributed to the failure of market capitalism,” Mr. Allison said. “I don’t think that’s true. Government policy caused the financial crisis…but that’s not the message that’s out there.”

During his time atop BB&T from 1989 to 2008, Mr. Allison nursed a small Carolinas farm bank into a regional powerhouse that weathered the financial crisis better than many peers. Over that time, a string of mergers helped BB&T grow to $152 billion in assets as of the end of 2008, from $4.5 billion when he started, making it the 14th largest bank in the U.S. then, according to S&P Global Market Intelligence.

Yet Mr. Allison instilled a conservative lending culture. BB&T avoided negative-amortizing loans and complicated structured products that Mr. Allison called “esoteric” and “illogical.”

That meant BB&T was often overshadowed by North Carolina rival Wachovia Corp., whose risky mortgage loans fueled huge growth before the crisis—only to then cause its downfall. That bank was purchased during the height of the crisis by Wells Fargo & Co.

Mr. Allison was unafraid to criticize his rivals or his regulators. In an interview during his final weeks as BB&T CEO, he complained that “til really very recently, we were told over and over that if we just had as good a risk management (model) as Wachovia, then we would do very well.”

While less known than his peers at big banks, Mr. Allison ranks as one of the most legendary bank CEOs in recent history, said Christopher Marinac, director of research at FIG Partners LLC. “He’s head of the class,” said Mr. Marinac. “A lot of folks didn’t understand the conservatism of BB&T until the crisis, but they appreciated it after.”

Mr. Allison’s worldview was shaped when he was a college student at the University of North Carolina-Chapel Hill and stumbled across a collection of essays by Ms. Rand.

Mr. Allison joined BB&T out of college in 1971 and became CEO in 1989. As CEO, he penned a 30-page handbook, “The BB&T Philosophy,” to give to employees on their first day of work. The first maxim was reality. “The existence of the law of gravity does not mean men cannot create an airplane,” he wrote. “However, an airplane must be created within the context of the law of gravity. At BB&T, we believe in being ‘reality grounded.’”

In 2006, Mr. Allison made headlines when he declined to lend money for commercial projects on private land seized by eminent domain—a government practice that Mr. Allison believed was an affront to individuals’ property rights.

As the federal government bailed out struggling banks during the crisis and tried to stem waves of foreclosures, Mr. Allison—in his final year as CEO—maintained that bad banks should fail and bad borrowers should lose their homes.

BB&T took a loan from the government’s Troubled Asset Relief Program, but Mr. Allison said it was largely because of government pressure. He was also wary of government stimulus spending, which he believed might provide a short-term boost but reduce long-term growth.

Mr. Allison retired from BB&T at the end of 2008, the coda of a long-term transition that installed another North Carolina native and BB&T lifer, Kelly King, as CEO. Under Mr. Allison, BB&T’s shares outperformed the S&P 500 by 100 percentage points.

The stock has underperformed the broader market by about 80 percentage points since Mr. Allison’s departure, though key profitability metrics remain higher than those of peers.

Since leaving BB&T, Mr. Allison has taught at Wake Forest University and remains involved at the Cato Institute, including at its Center for Monetary and Financial Alternatives. Last year he joined the board of investment bank Moelis & Co., where former House Majority Leader Eric Cantor is a board member and executive.

…, and the credit-rating firms whose Triple-A ratings guaranteed widespread marketability of the toxic assets. Second, we simply do not know what the next crisis will look like and whether or not bank capital will even be a relevant factor in its resolution. Third, Dodd-Frank has been a very effective jobs and growth killer, second only to the Federal Open Market Committee’s experimental policy these past eight years.”, Jim Kudlinski, Ph.D., former Federal Reserve Board official, The Wall Street Journal Letters to the Editors, December 1, 2016

“With regularity these days, the truth about the 2008 financial crisis and the falsity of the liberal politicians and their lackeys’ in the mainstream media/ press view, that greedy and reckless bankers and Wall Street caused it, is being exposed.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Opinion Letters

More Bank Capital Won’t Stop the Next Crisis

We simply do not know what the next crisis will look like and whether or not bank capital will even be a relevant factor in its resolution.

Regarding your editorial “Cash and Kashkari” (Nov. 22): The consensus is right, Dodd-Frank won’t stop the next financial crisis. And raising bank capital to 15% of assets as Neel Kashkari, the president of the Minneapolis Federal Reserve wants to do, won’t do so either. Given a repeat of the widespread penetration and pervasiveness of a shock similar to subprime, the fact is it is impossible to load enough capital on to the balance sheets of banks to guarantee avoidance of another crisis and taxpayer bailout. To place reliance on the protective features of Dodd-Frank, as we have been doing, is simply false security for three reasons.

First, Dodd-Frank ignores all of the others complicit in creating the subprime crisis, including the Fed and the other financial regulators who failed to see it coming, our government which, while the crisis materialized, cheered on the creativeness of the financial industry in making homeownership plausible for all, and the credit-rating firms whose Triple-A ratings guaranteed widespread marketability of the toxic assets.

Second, we simply do not know what the next crisis will look like and whether or not bank capital will even be a relevant factor in its resolution.

Third, Dodd-Frank has been a very effective jobs and growth killer, second only to the Federal Open Market Committee’s experimental policy these past eight years.

Jim Kudlinski, Ph.D.

Overland Park, Kan.

Mr. Kudlinski is a former Fed Board official.