Book Review: The Financial Crisis And The Free Market Cure

As CEO of BB&T, John Allison provides a different perspective on banking history, root causes of the Great Recession, post-recession regulations, and personal philosophy when compared to his peers. In summary, he believes in a conservative/libertarian marketplace. He lays out in this book the backstory for why this is important and the steps needed to begin moving the financial sector towards this end goal.

Government created incentives for banks and consumers to allocate more capital and labor to housing, inaccurate economic models, vote buying, and misperceptions about the benefits of purchasing a home caused this misallocation. Allison outright accuses the Federal Reserve and other departments of ineptitude, if not unlawful action, for their handling of the crisis that he argues they created. 

Along with Alan Greenspan and Henry Paulson, John Allison believes that Freddie Mac and Fannie Mae should have been dismantled. He points to their influence over politicians and their special treatment as a form of crony capitalism. Philosophically, he pins the blame for crony capitalism (which he considers socialism) on an electorate dependent on the state and fundamentally flawed, unrealistic, liberal philosophy. He praises the sort of fiscal conservative that Alan Greenspan writes were influential in shaping his philosophy. However, Allison believes Greenspan thought too highly of his ability to guide the economy. He views Greenspan's time in government as merely prolonging the inevitable and adding additional stimulus to the firey housing bubble.

Allison argues that corruption with the government could be seen with Lehman being allowed to fail but AIG and other non-commercial banks being bailed out, the TOO BIG TO FAIL philosophy, and the state forcing BB&T to take TARP funds to save direct competitors who abused the system. The government forced banks to act a certain way, and then punished them for reacting in their self-interest. Hypocritically, the banks had no way of knowing what rules would be enforced and in many cases had to deal with self-interested political appointees with their own set of short-term incentives that likely ran counter to long term goal oriented companies like BB&T.

The final passages can be read as a cry for a revival of hard work, strict constitutionalism, and "pure capitalism" in America. The book reads like a political platform for a conservative presidential nominee. This hypothetical nominee would support a return to a gold standard to limit government's manipulation of the money supply, decentralized the banking system, antitrust legislation against the biggest banks, holding firms accountable for their actions, a reform of accounting principals applied by regulators to businesses, and minimizing government's role in the financial sector altogether. 

This book broke from the traditional mantras of more regulation being needed in the banking sector, self-interest is fundamentally bad, and America is too capitalist. I agree with much of this book and the insights from his own career add to the narrative. Obviously, there is an agenda but it is one I personally found refreshing and even exciting. In our recent election cycle, I saw many of these same topics discussed.