John Allison has rarely been timid about expressing his opinions, especially when the discussion involves the role of government in people's daily lives. His message is always loud and clear: more government equals bad government.
When he was the chairman and chief executive of BB&T, Allison rarely minced words on subjects such as eminent domain and affordable housing. As an ardent supporter of the writer/philosopher Ayn Rand, he passionately defends individual liberties and free markets.
You could tell many times in the past decade Allison wanted to chew out banking regulators and politicians for what he viewed as stupid policy. But he had to show professional restraint, recognizing that BB&T could have suffered if he overstepped his bounds.
Allison told me about his interest in writing a book on the financial crisis, including the causes, just before he retired from the Winston-Salem, N.C., company in late 2008. I have been looking forward to this book ever since, realizing that Allison could fully express his views once he was no longer directly affiliated with BB&T. He retired as BB&T's chairman at the end of 2009, but remains on its board.
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At times Allison masterfully explains complex economic concepts in ways that those outside of financial services can comprehend. Alternately, he also invokes his inner Holden Caulfield, using the book to rant about the "crony capitalists" who nearly destroyed banking.
Government absorbs the lion's share of his rebukes. He faults, in order, the Federal Reserve Board, the Federal Deposit Insurance Corp., Fannie Mae and Freddie Mac and the Securities and Exchange Commission for "destructive mismanagement" of the economy.
Who were the primary culprits behind the 2008 crisis? Fed Chairman Ben Bernanke, then-Federal Reserve Bank of New York Tim Geithner, Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., he writes.
His so-called crony capitalists include Goldman Sachs, Citigroup and the now-defunct Countrywide. Allison heaps scorn on those companies for seeking "special favors for themselves." The government has rescued Citi three times since 1970, with the company "becoming bigger and worse" every time, he complains.
Regulators "are not visionary, big-picture thinkers," he adds. "The top regulators are political appointees. The rest are lifelong government bureaucrats."
What I found most interesting was Allison's efforts to determine how much blame financial institutions deserve. There seems to be a great deal of soul-searching throughout the book, reflecting a level of self-reflection shared with scores of bank executives.
At various points, Allison admits that BB&T acted against its better judgment in the lead-up to the financial crisis, based on fears of losing ground to competitors, whether they were large financial institutions or community banks.
Still, he is quick to blame regulators for creating an environment where such risks were necessary. The Fed "created a false sense of security that fooled many financial institutions," Allison asserts.
"In the back of my mind, I knew that the housing market should have been correcting all along," he continues. "The knowledge that government policymakers could act in an aggressive manner to save the housing market made us significantly less willing to act to reduce risk."
An essay on the financial crisis would be incomplete without a discussion on the Troubled Asset Relief Program. Even while CEO of BB&T, Allison said the company did not need the money and that the program's real purpose was to bail out the sickest banks without singling them out.
Allison recalls trying to meet with then-Treasury Secretary Henry Paulson and Bernanke. "Neither of them would meet with me," he writes. "Paulson and Bernanke were in almost constant conversation with the unhealthy institutions, but they would not talk to the leaders of the healthy banks."
Other nuggets abound for those curious about BB&T. Regulators put a stop to the company's merger activity in early 1993 after BB&T was snagged in a dragnet looking for discriminatory lenders. Allison denies that BB&T was guilty; the prohibition ended when the Republicans regained the House in 1994.
Allison also reveals that BB&T scouted Colonial BancGroup in Alabama for a potential acquisition but passed after observing that CEO Bobby Lowder "had a command-and-control mind set" and "had a hard time listening to negative feedback." Colonial also had large financial positions in high-risk loans that would have failed BB&T's credit standards. (BB&T bought Colonial Bank after it failed in August 2009.)
There is certainly more to the book than anecdotes and invective. As its title suggests, Allison presents an argument for reducing government spending and minimizing its involvement in the economy. "Our economy would be in better condition today and our future brighter if the free market had been setting interest rates instead of the elitist experts at the Fed," he writes.
I will not delve into all of his pointers for curing the banking industry. Online over the next few days, American Banker is running the entire chapter where Allison offers six steps for shoring up the system. Some actually seem in keeping with regulatory decrees; he wants to require banks to have substantially more capital. Yet he also wants to eliminate 90% of the regulatory burden and privatize or liquidate the GSEs.
Allison also wants to replace FDIC insurance with self-insured pools guaranteed by banks and backstopped by big insurers. This sounds like a train wreck to me, particularly if we have to rely on the banks' cooperation to make it work. How do you parcel out responsibility?
What happens if the relationships get strained? My concern is that a self-insured pool sounds eerily similar to the counterparty relationships that unraveled in the fall of 2008 and nearly cratered the financial system.
Still, most of his ideas have merit. The book meanwhile should solidify Allison as a high-profile champion of individual liberty and free markets. The timing is excellent, given both the anniversary of the financial crisis and the beginning of Allison's tenure as the CEO of the Cato Institute, one of the nation's biggest libertarian think tanks.
