November 11, 2012
The Cato Institute is in good hands.
I read John Allison's The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy's Only Hope shortly after finishing Yaron Brook's "Free Market Revolution: How Ayn Rand's Ideas Can End Big Government." They are, curiously, the same book.
Allison saw the drama unfold from his point of view as head of BB&T Bank. Allison's take is a lot more detailed and technical than Brook's (while far less technical than Edward Conard's Unintended Consequences), but the two Rand acolytes are in synch philosophically and economically.
Allison was John Galt in Don Luskin's "I Am John Galt," and he describes how her principles guided the management team of BB&T, keeping them out of trouble even though real estate was a huge portion of their business and their geographic areas were among the worst hit. Of course, no good deed goes unpunished in government. BB&T was forced to take TARP funds it did not need, and Allison "went Galt" shortly after:
Unfortunately, BB& T's highly decentralized decision structure has largely been destroyed by the recent regulatory attack. This is true irony in that while BB& T's structure radically outperformed the industry, we have been forced to replicate the credit decision structure of Citigroup, Wachovia, Bank of America, and others, which fundamentally failed. However, a centralized structure gives the regulators a greater sense of control.
Both Brook and Allison use the Bernie Madoff example to separate self-destruction from rational self-interest.
In my role as CEO of a large public company, I have had the opportunity to meet many financially successful people. I have never met anyone who was both financially successful and happy who achieved this result primarily by taking advantage of other people. I have met a few people who were financially successful who, I believe, achieved this result based on some level of deceit. These are the unhappiest people I have ever met.
Unlike Conard (and like Brook), Allison sees little or no role for government regulators. Bad banks gotta fail and people have to select good banks and allow reputation and yield to manage the risk.
Many independents and moderates who are skeptical of big government believe that we do need many regulations. They fail to recognize the incredible march of the regulatory state. They also do not understand that, as public choice theory has proven, government bureaucrats are often motivated by destructive incentives. In my career, since 1971, I cannot think of a single additional regulation placed on the financial services industry that did not reduce the efficiency of the industry and lower the country's overall standard of living. The only success stories have been deregulations (such as interstate branching).
Lots of excerpts in this review, and trust me, there were a criminal number of great ones that did not make the cut. I'll give this book five stars and the heartiest of recommendations. I'll close with this bone to the Randians, from footnote #3:
I also thought about titling the book How the Critique of Pure Reason by Immanuel Kant (1783) Caused the Financial Crisis, but that was too obscure for most people, although it was more accurate, since Kant was the major philosophical opponent of reason who put an end to the Enlightenment century (1700s) that indelibly shaped the founding of the United States.
Review Corner Posted by John Kranz at November 11, 2012 9:01 AM