Would You Trust a Randian Banker?

December 5th, 2011 at 12:00 pm | 42 Comments |

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Conservatives give a lot of deference to the opinions of business leaders and other ‘job creators’. The operating assumption is that their criticisms of White House policies are accurate and well informed. What if this assumption is largely off-base?

Consider this roundtable hosted on CNBC between Austan Goolsbee, the former Chairman of the Council of Economic Advisers, and several business executives. Pay close attention to the arguments made by John Allison, former CEO of the bank BB&T:

(H/T Barry Ritholtz)

In this video, Allison argues that Fannie Mae and Freddie Mac were responsible for the majority of subprime mortgage loans. Goolsbee is aghast because this is not factually accurate at all.

Allison is the former CEO of one of the largest banks in America. It is a job demands incredible attention to detail and expertise. What could possible lead him to adopt a stance which is so at odds with what the facts say?

It turns out that Allison is actually a major philanthropists who has been making donations to business schools across the country on the condition that they teach Ayn Rand in the classroom. Allison doesn’t only give a lot of money to spread the Rand gospel, he believes it himself so he gives lectures on the topic.

If you have taken a business school class that teaches Atlas Shrugged as part of a course on the “morality of capitalism”, it is likely that the course is a product of BB&T’s money.

Allison is no David and Charles Koch, but I suspect he is expressing an opinion that is shared by many of the major donors to Heritage, Cato, and other think tanks.

The moral of the story: just because the person talking has a lot of money doesn’t mean they always know what they are talking about, especially if they never grew out of their Ayn Rand phase.

Recent Posts by Noah Kristula-Green



42 Comments so far ↓

  • Frumplestiltskin

    “especially if they never grew out of their Ayn Rand phase.”

    And some of us had the good sense to never grow into it.
    And any business school who took a dime on a condition that they teach lunatic economic theory would be a disgrace. If you want to give money to promote Hayek go ahead, schools should already teach it. If I taught biology and any administration told me I had to teach Creationism because some whackjob wants to give money, I would refuse to do so.

  • Falling Rock

    Maybe this is why I don’t trust bankers. I mean aside from 20 years in banking.

    I’m posting this via a browser called Firefox, and there’s fair odds that another reader is reading it via Firefox or Chrome.

    I always wonder where open source would fit in Rand’s world.

    • Nanotek

      the first struggle between people seems to be to control the labels given to thing, imo…

      same with self-interest …

      since I’m part of the working-class, open source seems in my interest … collective cooperatives — like roads, the military, etc., can be in my self-interest

      • Rick123

        A key problem (and where the Randian system breaks down) is that people often act in ways that don’t support their own self-interests. This is where behavioral economics is superior to classical economics. You can look at what people should do, and can come up with great prescriptions for society (like Rand). But, if you look at what people actually do, you see that those approaches fall apart quickly.

  • Graychin

    It makes me sad to think about Randians who believe that no one ever does anything except for profit. How can anyone be so shallow?

    The Randian view of human nature just as warped as that of Karl Marx. Yin to Yang.

    • Reflection Ephemeral

      The weird thing is, Marx was dead right about the need for class solidarity. At least, that explains Allison’s worldview, and that of the US Chamber of Commerce.

      In the 1990s, the US Chamber backed ClintonCare, because the leadership constantly heard from its members that health insurance costs– far out of whack vs. other wealthy countries, even then– were a crippling, anticompetetive cost. But this time around, with the Chamber retooled as a Republican-leaning, large-firm-funded PR factory, they went all-out opposing the (further right) Affordable Care Act– interests of small business owners be damned. In Allison’s worldview, all you need to know about any policy issue ever is that government is Bad and industry is Good. (This is also partly a consequence of the anti-government talking points of the Southern Strategy, and the ideological sorting out off the parties in the US, which led many folks to pick one side over the other & embrace its talking points wholesale). So if there was a financial crisis, it could only have happened because of government, the root of all Bad. The facts are quite irrelevant.

      That’s to some extent because, as our inequalities have exploded in the past thirty years, those at the top have come to feel a much greater class consciousness than perhaps any we’ve seen in the US from any group. (Maybe there was something similar in the Gilded Age or during the 1920s boom; I just don’t know).

    • Ray_Harwick

      The problem is that none of the Randian bankers that got bailed out ever went to JAIL.

  • LFC

    Allison is just lying. Not exaggerating, not spinning, not misinterpreting. This is pure, 100% fabrication. This is making up a narrative and completely ignoring reality. Which, of course, makes him a perfect Republican financial advisor.

    • jamesj

      While I firmly believe that Randian philosophy is rubbish, I don’t think it is accurate to accuse people who spread this philosophy of “lying” or “fabricating”. Take it from someone who’s closest loved ones believe this mode of thought… they truly do believe it. They mean well. They are just shortsighted and they allow their human fears, insecurities, and selfishness to get the better of them. These are problems that effect all human beings. They are not unique to modern Libertarianism.

      As with any folk wisdom, this philosophy happens to be easy to understand and fits closely with common human cognitive biases. It is as simple as that.

      John Allison is likely not an immoral person. He likely believes the opinions he stated in this video. Sure, he’s 100% factually and empirically incorrect and his opinion is dangerous for the country, but you might as well approach folks like him with the assumption that they mean well because they do.

      His use of some interesting phrasing about “knowing the business from the inside”, “psychology”, and “perceptions” tips us off as to why he believes what he believes: he makes important judgements about complex systems based on his own anecdotal emotional experiences. Welcome to Human Beings 101. We all do this. It is a massive problem and this type of simplistic philosophy that allows you to avoid the ugly truths of reality is the result.

      Note that traditional Conservative philosophy’s goal is to combat the enormous dangers of anecdotal emotional beliefs like those spread by Mr. Allison. That is the whole point of traditional Conservatism. It is very easy for human beings to strongly believe in things that are false, counterproductive or dangerous from a big picture perspective. And how in the world will you ever know that you’ve peeled away enough onion layers to get to a healthy truth? There are always more layers to peel.

      It is ironic that many who consider themselves “conservative” are the new reactionaries preaching a philosophy of radical hubris and individualism. But if you want to make a difference – if you want to convince them of their errors – approach them under the assumption that they want the best for this country and their families just like you do. They believe in their hearts that radical capitalism and deregulation would lead to a better life for all Americans.

      • LFC

        When I accuse him of lying, it has nothing to do with his philosophy. It was his repeating the absolute proven lies.

        Big Lie #1: He said that Fannie and Freddie were the major cause of the bad mortgages. This is a proven lie. They wrote less than 30% of the subprime during this time. On top of that, privately backed mortgages failed at a 6X higher rate. There’s no way to spin this. He lied.

        Big Lie #2: He said that banks and mortgage companies were “forced” to write bad loans by the government. Again, this is a proven lie. He is referring to the Community Reinvestment Act. It said that banks under federal regulation could not reline specific neighborhoods where they refused to write any mortgages no matter what the fundamentals. They were still required BY LAW to write conforming loans. Private mortgage companies (and he mentioned Countrywide in the video) weren’t even covered by the CRA. So this one is just a whopper.

        So I didn’t call him a liar because of his Randian philosophy. I called him a liar (and still do) because … well, because he told lies.

  • Rob_654

    As long as they also teach that Ayn Rand was a devout Atheist and that much of her belief structure is predicated on her Atheism. Although she does give a bad name to Atheists…

  • Rick123

    There is no such thing as a Randian Banker. In Atlas Shrugged the key idea is that no one should rely on anyone else and should have no one rely on them.

    Bankers are all too eager to say, “Don’t rely on me to bail you out” which IS Randian. But, they don’t follow through and say “I won’t rely on anyone.”

    Bankers as much as anyone are just as happy to get all the perks and write all of the favorable regulations to give themselves the advantage. This is the *opposite* of Randian.

    By the way, Glenn Beck likes to pretend to be Randian, but in Atlas Shrugged, one of the most despicable characters is the propagandist journalist.

  • Sinan

    I am reading a fantastic book right now which lays bare the entire history of the banking scandal. It is called “All the Devils are Here”. This guy who is blaming Fannie and Freddie is so wrong it hurts to listen to him. If you watched 60 minutes last night you will get a glimpse of what really happened with sub-prime loan origination. The next episode should cover how the market for mortgage backed securities was created and why it demanded more and more loans as the pool of mortgages started to drop and affect bonus’s on Wall Street. Why we are not sending some of the crooks to jail is beyond me. Steal a piece of pizza on crack and you go to jail. Steal trillions of dollars of value in pension funds, 401Ks and so on and you get an island in the Bahamas.

    • Falling Rock

      That’s a good book, but you have to be careful about where you toss the baby when disposing of the bath water. In looking for blame there’s a tendency to toss out products along with the abuse of those products including FNMA, FHLMC and the sub-prime industry. Many products have a place and a time, but not a large breadth of application. There’s a natural market limit to their use. The problem is that there’s no incentive in the world to respect those limits.

      15, or so, years ago I started looking into REIT’s. The vehicle had a bad name at the time and mentor explained to me that this was largely due to the meltdown of mortgage REIT’s. He described the meltdown in simple terms. The REIT’s were created, they worked, and they made a bunch of good loans, but once you make all the good loans the next step is to make all the bad loans.

      Our financial system repeats that trend be it REIT’s, LBO’s, CMO’s, CDO’s, CDS’s, IPO’s, Junk Bonds, etc.. etc.. The pattern is the same. A product is found. It works, it may even do some good. It’s then packaged and reapplied over and over and over… until it doesn’t work and/or collapses spectacularly.

      If your job is to sell mortgages, deliver mortgages, package mortgages, or sell mortgage backed bonds once the market no longer wants or needs them or the appropriate supply has diminished, it’s still your job to continue to sell, deliver, package, and sell. So new markets are found, whether it makes sense of not.

      I’d blame Wall Street, but even the guy on the street is heavily incented to keep it going. As is society at large. A lot of dot.coms didn’t makes sense, but as a society everyone was excited by them. Mortgage’s didn’t make sense, but the broader society didn’t seem to mind when their property values went up and their homes sold for prices they never imagined owing to the leverage. All the devil’s were there, and nobody really had an incentive to stop them.

      I’m not so much concerned about who goes to jail today as I am about how to stop the cycle and keep the products available for use where appropriate. How we can celebrate our wise limits on power encoded in our Constitution, but refuse to exercise wisdom in our financial matters is a mystery to me.

      • valkayec

        +1

      • Sinan

        I understand your point but when looking back at the creation of these financial instruments I can see that one of the reasons they even exist is that we allowed for the merging of investment banking with retail banking. When the smartest minds in the world stopped thinking that working for Bell Labs or Xerox or NASA was the best job imaginable and started flooding Wall Street, well we all suffered. Wall Street to me is like the gaming business. It exists as a playground to make money off other peoples value creation. If Wall Street would return to capital investment banking then perhaps I could see their utility. But what they do today is nothing more than a bet looking for the last sucker to fleece. It has no intrinsic value to anyone. There is no there, there. For this reason, I believe that all income over a certain amount should be taxed at extremely high rates, confiscatory if needed. Take the incentive out of this and you can keep this at bay.

        • balconesfault

          But what they do today is nothing more than a bet looking for the last sucker to fleece.

          And that includes a healthy disregard for one another – which is where a huge part of the problem evolved. They started acting as if all their financial dealings were simply a way of proving they were smarter than the other guy across the street, and as if they had no fiduciary responsibility whatsoever either for their customers or to society at large.

        • Sinan

          I am telling you, this book reveals it all. CEOs at one firm were watching other CEOs at competitive firms report massive earnings and telling their risk managers to find a way to let the trading desks take more risk (they actually thought that CDOs were risk free because they paid off Moodies to give the triple A tranches the highest ratings in a collossal circle jerk payoff scheme). The whole thing disgusts me because other than SarbOx, I really don’t think they broke any laws. Why? Because they fought every attempt to regulate them over the years. And the corrupt legislators included both sides of the aisle. I am really astounded that this book did not create a national outrage. It is damning testimony to massive fraud at all levels.

        • Marquis

          Washington can regulate and de-regulate and re-regulate the de-regulation, but at the end of the day, the smart guys in the room are still going to find clever ways to exploit profitable glitches in the marketplace and avoid oversight at the same time. It’s like the pharmaceutical companies that hire chemists to alter the chemical composition of their drugs ever so slightly, so they can file a new patent when the current one expires. Even if financial deregulation had not been implemented, the bubble would have inflated around something else. Forget Washington, all we consumers can do is get educated and protect ourselves financially.

        • Sinan

          Perhaps but then you can always take the incentive out by taxing all income over say 1 million a year at 50-70% and take all the fun out of it for them. Wall street ceased to be useful to us a long time ago. They are bookies now, nothing of value originates from those jackals.

  • balconesfault

    I love when Allison makes that Freddie and Fannie are completely responsible because they created an incentive.

    This is akin to saying that any city that runs a public bus system is creating an incentive for pickpockets to prey on customers … and therefore if anyone has their wallet stolen while riding public transportation the correct remedy is not increased regulation (ie – security cameras, policing, convictions) but rather shutting down the bus line.

    Would Alison let the pickpockets go, with the observation that government incented them by concentrating all those people in one crowded place for them? Of course not. Pickpockets don’t belong to his club.

  • I will save you

    Of course, none of you pointed out that ALAN GREENSPAN who was head of the FEDERAL RESERVE for nearly 30 years is a devout RANDIAN.

    So they had someone in charge of the economy that subscribed deeply to their thoughts, values, and core AND we wound up in a dumpster.

    I hardly would think that the reason was that he wasn’t sufficiently RANDIAN.

    • Rossg

      Yes, read Rand’s “Capitalism: The Unknown Ideal.” It is a collection of articles, mostly be Rand herself, but Greenspan contributed no less than 3. I only discovered this tract a year ago. Quite chilling to think a Randian held the strings of our monetary system for so long.

  • Houndentenor

    Is this serious?

    You shouldn’t trust any bankers, just as you shouldn’t trust any politicians. The banking industry is completely corrupt. Note that many credit cards now charge interest rates that up until the 80s would have gotten you 20 years in prison for loan sharking, in spite of record low interest rates on savings. They’re crooks. They’ll slip in fees and turn around and sell your personal notice unless you go to great lengths to opt out. (Note they are required to tell you that you can opt out, but they don’t provide any convenient way to do so!)

    It’s a crooked business run by crooks. They are all getting rich even in this lousy economy.

    No, I don’t trust them. I used to work for them. I know what I’m talking about.

    • indy

      This, except for the fact that I don’t limit myself to bankers and politicians. I don’t trust anyone whose interests aren’t strictly aligned with my own. That would be a total of 4 for me but YMMV.

      Ignorant Randian Bankers are just another subset.

  • Okie Exile

    Wouldn’t a “Randian Banker” be, by definition, someone who wasn’t omni-competent enough to be actually creating something, and had to settle for serving the “prime movers”? A sycophant at best, and probably a suspect collectivist.

  • Houndentenor

    A question for those who want to shut down Freddie and Fannie: how are people going to get 30 year mortgages (or even 22 year mortgages) if the banks have to hold a note at a fixed rate for 30 years. Mortgages for more than 10 years were unheard of before the federal government got involved. It’s a huge liability for a bank to agree to a fixed rate when they have no idea what the markets will be like in the 2030s. So how exactly will middle income people (those making around 50k) ever qualify for a mortgage they can afford?

    • Sinan

      Excellent point. That is exactly why they were created and also to free up equity at the bank so they could make more loans by assigning risk to the GSEs. The thing that broke was that the GSEs wanted to make more money. They got bored making just a pittance compared to the big boys and they wanted to get in on the sub-prime racket. So, they got into it just like the others and before you knew it, they were holding a ton of sub-prime loans. Now, they did not take on the worst of those loans like the other Wall Street banks, no sir. And that is where this hack is wrong and Austan is right. The GSE’s had to abide by their rules even if they stretched them for the sub-prime markets a bit.

  • CowboyDan

    Her atheism. Don’t lump all of us with her adolescent philosophy.

  • Chuck Vekert

    It is interesting that, according to GOP/Wall Street myth, banks were forced against their will and better judgment to make all these sub-prime loans while Alan Greenspan (a Randian himself) and George W. Bush were in office. Is it credible that bankers did not think to complain to either of these gentlemen or that if they did their warning were ignore? Were Greenspan and Bush were so interested in low income housing that they did not care about the banks?

  • Marquis

    Ayn Rand’s theories make for good novels, but not much else.

    • indy

      Assuming you skip the middle 100 pages (or, in the case of Atlas Shrugged, the middle 300).

  • Russnet

    Noah, you’re liberal, dude. Give it up. Quit pretending to be an enlightened conservative.

  • ZigZag

    In the future, please check your spelling and grammar before you publish.

    Thank you.

  • Economist's View: Links for 2011-12-06

    [...] Would You Trust a Randian Banker? – FrumForum [...]

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  • overshoot

    The moral of the story: just because the person talking has a lot of money doesn’t mean they always know what they are talking about, especially if they never grew out of their Ayn Rand phase.

    Or perhaps they know exactly what they’re talking about, but like the theocrats they justify it because it serves some higher cause.

  • Yes, I’d trust a Randian banker (if only more banks were like BB&T) « The Enterprise Blog

    [...] Kristula-Green has a strange post here asking “Would You Trust a Randian Banker?” (h/t Mark Thoma) He takes shots at former [...]

  • armstp

    Of course this banker is going to blame all the mistakes and criminality of the economic crisis on the government. It serves his purpose do deflect. CNBC is a bit of a joke and many business “leaders” are extremely ignorant (whether willfully or actually) of causes of the current economic downturn and of the economy and financial markets in general. It is clear as day when you run into a hard right-wing business “leader”. They mostly talk all politics rather than reality. It is the central problem that most of these moronic business “leaders” have so much influence on Washington.

  • armstp

    Austan Goolsbee is phenomenal.

    “Goolsbee was born in Waco, Texas,[5] the son of Linda Catherine (née Dean) and Arthur Leon Goolsbee. He was raised primarily in Whittier, California.[6]

    He graduated from Milton Academy and received both his B.A. summa cum laude and M.A. in economics from Yale University in 1991 and went on to receive his Ph.D. in economics at the Massachusetts Institute of Technology in 1995. He was an Alfred P. Sloan Fellow (2000–02) and Fulbright Scholar (2006–07).

    At Yale, Goolsbee was a member of the Yale Political Union, the improv comedy troupe Just Add Water, Skull and Bones, and the Yale Debate Association. He and debate partner David Gray won the APDA National Debate Team of the Year competition in 1991. He and partner Dahlia Lithwick were runners up for the award in 1990. As a high school student, Goolsbee won the national championship in International Extemporaneous Speaking (IX) in 1987.”

    Goolsbee can and did skate circles around that moron from BB&T.

  • PeterM

    Are you people for real? John Allison was phenomenal, and he made Goolsbee look like a fool.

  • chrissandvick

    Got to love it when an intern with a BA in Political Science gets nasty to the longest serving banking CEO of a successful bank that largely avoided the mistakes of the industry as a whole in part because it is influenced by Objectivist principles.

    If you were an investor would you trust a Randian banker? Along with Wells Fargo, BB&T benefited from the “flight to quality” phenomenon as it was known as a well run bank.

    If you were buying a house would you trust a Randian banker? BB&T did not offer “pick-a-payment” (subprime) mortgages specifically because they believed they were bad for the customer. They were the only large bank to do so that I know of. Allison has credited Objectivism for that policy. He’s even talked about how they lost good producers to other firms that did offer subprime but continued to stay out of that market because it was a bad deal for their customers.

    If you are not a complete fool and look at actual performance during the crises you damn well should have trusted a Randian banker like John Allison.

    Allisons full argument is here:
    http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis