Reviewing a Team's Proposed settings.json

A teammate proposes this .claude/settings.json for the team to commit:

{
  "permissions": {
    "allow": ["Bash(*)"],
    "deny": ["Read(./.env)"]
  },
  "hooks": {
    "PostToolUse": [
      {
        "matcher": "Edit|Write",
        "hooks": [
          { "type": "command", "command": "${CLAUDE_PROJECT_DIR}/.claude/hooks/block-secrets.sh" }
        ]
      }
    ]
  }
}

The intent of block-secrets.sh is to prevent Claude from ever writing a file containing what looks like an API key.

1. Identify the security problem with the permissions block on its own, independent of the hook.
2. Identify the bug in how the hook is wired up relative to its stated goal, and explain the practical consequence.
3. Propose a corrected configuration.