BB&T Chairman on Bailouts and Gov’t Stimulus

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Last Thursday the Ayn Rand Center for Individual Rights hosted a lecture by BB&T board chairman John Allison at the National Building Museum in Washington DC.

Allison’s talk focused on the current financial crisis from a free market banker’s perspective.

An important point Allison kept driving home was that the current economic climate was caused by the fact that we have a mixed economy and a self perpetuating cycle of poor government policy.  Government creates a mess, then attempts to fix it with a new government program.  At one point Allison made the comment that he believes the United States government moving in the direction of economic Fascism as opposed to Socialism.  Meaning that bureaucrats have realized that they don’t need to own the means of production in order to control them.

Allison had a lot to say about possible cures for the current financial mess. He broke these up into two categories, long-term and short-term.  Here are his short-term cures.

• The Federal Reserve provides liquidity to financial intermediaries in core banking system only.
• The Federal Reserve needs to buy back long-term Fannie/Freddie bonds to lower mortgage rates.
• Cut corporate/business income tax rates.
• Cut individual income/payroll taxes: including high income individuals who pay taxes and have capital to invest.
• Don’t bail out any more non-banks: let the market correct.
• Don’t introduce any new government programs.  Markets don’t react well to unpredictability and arbitrariness.
• Restore “cash based” accounting system.
• Stop wasting money on non-essential government spending such as pork barrel projects.

Here are his long-term cures.

• Privatize/Liquidate Fannie/Freddie after the crisis.
• Return to Originate and Hold model for residential mortgages.
• Strip the Federal Reserve of its powers.  It’s one goal should be to grow the money supply at a fixed rate, not to manage it in the short run.
• Consider market based monetary standard such as gold.  As long as the government controls the monetary system it has the incentive to inflate the currency and run deficits which are virtually unlimited.
• Raise capital requirements for banks (especially start-ups) and reduce FDIC insurance back to $100,000.
• Make it explicitly clear that the Federal Reserve cannot/will not “save” non-banks.
• Stop subsidies to housing via tax policy.
• Encourage productive investment through low and neutral tax rates.
• Engage in free trade policy.
• Carefully and systematically privatize Medicare, Social Security and education.
• Significantly cut the cost of defense by defending the United States, not “saving” the world.
• Encourage immigration of the productive and hardworking; especially the well educated.
• Restore discipline to the system by saving more and spending less.

Allison finished up by going over what he believes are the deepest causes of the current crisis.  He believes that altruism caused the well intentioned affordable housing programs, redistributive economic policies and the fundamental belief that people don’t own themselves or the fruits of their labor.  This leads to the tyranny of the majority that the Founding Fathers warned about where 51% of the population vote to steal wealth from the minority.

all photographs Morgan Ashcom 2009