In essence, we are witnessing the culmination of the battle between Henry F. Potter and George Bailey.
Since before the middle of the last century, it has been official U.S. government policy to promote and encourage home ownership.
The predicted consequences of this George Bailey-like policy are now coming true in many communities across America…the result of banks making loans that they would not have made in a free market, had they acted on their own judgements according to their own rational self-interest and long-term profitability.
Hadn’t these [banks] performed a public service by abandoning the cold and heartless policies of Henry F. Potter and allowed untold thousands of people to achieve “the American dream”? Is this not what their own government, which regulates them, called for? … Weren’t they, in fact, complying fully with the implicit premise as expounded in It’s a Wonderful Life…that the purpose of the banks are not their own profitable self-interest but to “serve” the public?
But what would a real-life George Bailey look like? And a real-life Henry F. Potter?
The private sector poster child for what went wrong is Angelo Mozilo, founder of Countrywide Financial. "More Americans should own their own homes”, declared President Bill Clinton in 1994. Riding the government’s axis of irresponsibility…led by the Fed’s easy money policies, Fannie and Freddie, the FDIC, and the Community Reinvestment Act…Countrywide charged ahead in carrying out the government’s affordable housing crusade. Time reports:
"The son of a butcher, Mozilo co-founded Countrywide in 1969 and built it into the largest mortgage lender in the U.S. Countrywide wasn't the first to offer exotic mortgages to borrowers with a questionable ability to repay them. In its all-out embrace of such sales, however, it did legitimize the notion that practically any adult could handle a big fat mortgage."
Countrywide became the leading champion of the alleged victims of the Potters of the banking world. He originated massive volumes of “exotic” mortgages, then sold them to the government-created mortgage giants Fannie Mae and Freddie Mac. Mozilo became a real-life George Bailey, taking in the “rabble” that the Potters neglected. Reported the National Mortgage News on February 17, 2003:
“Mr. Mozilo labeled downpayments as ‘nonsense’ and said credit score requirements are ’still much too high.’… the outspoken industry leader called on his colleagues to ‘take a chance on making mistakes rather than foreclose on the opportunity’ to put minorities and other underserved families into homes of their own.”
“The $1 Trillion We House America Challenge … embodies Countrywide’s long-standing commitment to lead the mortgage industry in closing the homeownership gap for minority and lower-income families and communities,” said Countrywide Financial Corporation Chairman and CEO Angelo Mozilo in a January 14, 2005 press release.
Leaving aside the racist and elitist implications of his banking philosophy (that “minority” and “lower-income” folks are incapable of practicing the virtues of thrift and long-term financial planning that would enable them to meet sound lending standards), there can be no doubt that Mozilo was upholding the spirit of George Bailey. The rest, as they say, is history.
John Allison, our real-life Henry F. Potter (but without the Hollywood window dressing of personal nastiness), ran his bank a little differently. Bank giant BB&T grew from $4.7 billion to $152B under Allison’s reign as CEO (since retired, but still the Chairman). But unlike the movie villain, seedy towns with graveyards standing where housing developments should have been is not his legacy. And unlike his real-life counterpart (Countrywide Financial), BB&T emerged from the crisis as one of the strongest banks in the country. Allison’s secret – strict adherence to an explicit business philosophy of rational self-interest.
In a wide-ranging interview with Russ Roberts, Allison (an unabashed Objectivist):
“argues for the virtues of profits, self-interest and production. His definition of justice, one of the core values of his firm, is that those who produce more, get more. He argues that Bill Gates would do more for the world improving Microsoft than running his foundation and giving away money. Allison praises Atlas Shrugged and refuses to let his bank make loans to companies that use eminent domain to acquire property.”
BB&T’s philosophy (the company is now run by Kelly King) is laid out in a special section on its website. The introduction stresses that although “Change is necessary for progress, … the context, our vision, mission and values, are unchanging because these principles are based on basic truths.” (Emphasis added)
Its core principles are led by its Values (reality, reason, independent thinking, productivity, honesty, integrity, justice, pride, self-esteem, and teamwork, with a final word on the role of emotions). Values are defined as “practical habits that enable individuals to live, be successful, and achieve happiness.”
These values define the Concepts That Describe BB&T, its Vision, Mission, and Purpose, and its Strategic Objectives. These set the tone for its relationship with its clients, employees, and the community at large, and define BB&T’s long-term goals:
Our ultimate purpose is to create superior long-term economic rewards for our shareholders. This purpose is defined by the free market and is as it should be. They take the risk if the business is unsuccessful. They have the right to receive economic rewards for the risk which they have undertaken.
However, our purpose, to create superior long-term economic rewards for our shareholders, can only be accomplished by providing excellent service to our clients, as our Clients are our source of revenues.
To have excellent client relations, we must have outstanding Employees to serve our clients. To attract and retain outstanding employees, we must reward them financially and create an environment where they can learn and grow.
Our economic results are significantly impacted by the success of our Communities. The community's "quality of life" impacts its ability to attract industry for growth.
Therefore, we manage our business in a long-term context, as an integrated whole (my emphasis), with the ultimate objective of rewarding the Shareholders for their investment, while realizing that the cause of this result is quality client service. Excellent service will be delivered by motivated employees working as an integrated team. These results will be impacted by our capacity to contribute to the growth and well-being of the communities we serve.
Charity (9:53 into the Roberts podcast) is a part of BB&T (which uses United Way), though it must be secondary and based upon rational self-interest. But charity and self-interest are not mutually exclusive, if you want to “create the good community”, as long as one’s giving is non-sacrificial. Allison frowns on “narrow” self-interest, which “is to let others create the good community, doing the work for you.” “By focusing on what life is about you can get meaningful rewards from other things than just making money.”
Under the heading “Business Ethics”, Knowledge@Emory writes in its post Why Principled Leadership Brings Profit and Pride to BB&T that “John Allison, who uses philosophy not only to guide his life, but to run a company, could easily be called a ‘CPO,’ or Chief Philosophical Officer.” We can see why.
The press has noticed. National Review Online’s Mark Hemingway authored an article called Objectivism for Fun and Profit – How a banker avoided ruin by cleaving to Ayn Rand’s system of ethics. Allison, a strong opponent of the government’s bank-bailout program:
…isn’t your typical bank executive. When he discusses his profession, he doesn’t talk about numbers; he talks about values and principles.
The fact that BB&T didn’t dive headfirst into the shallow pool of subprime mortgages certainly goes a long way toward explaining the relative health of BB&T as an institution. But how was BB&T able to resist chasing after all that new mortgage money?
The answer is simple: Subprime mortgages were bad for the people who took them out. That went against BB&T’s philosophy — not for reasons of altruism but because it would have been poor strategy. “We’re obviously a for-profit company, but we don’t think that it’s good business in the long term to do bad things to your clients, even if you make a profit doing it,” Allison said. “So we chose not to do negative-amortization mortgages because we knew it was going to get a lot of people in financial trouble.”
Allison navigated through the overheated mortgage market and the ensuing banking crisis by relying, in large part, on a philosophy that many others are now turning to: “I got interested in [Ayn] Rand in the late 1960s. I read Capitalism: The Unknown Ideal. I had already been interested in economics, and as I finished college, I got interested in finance. I saw the banking system as central to a capitalist economy.”
[Allison calls] Rand’s seminal work, Atlas Shrugged, “the best defense of capitalism ever written” and [has] made it required reading at BB&T.
Rand is often viewed as “extreme” because her defenses of capitalism and “rational self-interest” are seen as promoting greed and selfishness. Yet Allison is quick to note that the strong values and ethics that Rand’s philosophy promotes allowed BB&T to steer clear of shortsighted and greed-driven decisions.
“A lot of people miss the fact that Rand has a very strong ethical system,” he observes.
However, simply because Rand doesn’t endorse altruism for altruism’s sake, many people misconstrue her to be amorally selfish. Rand “doesn’t view ethics as self-sacrificial,” Allison says, “she views ethics as a rational means to success and happiness. If you described her in principle, she would say that you shouldn’t take advantage of other people because that is unethical behavior and self-defeating. But you also shouldn’t self-sacrifice. What you really need to do is run your life in relationship to other people in context to what she calls the trader principle. The trader principle is about what I call creating win-win relationships. We trade value for value and we get better together, and we find these common grounds where we can get better together.”
By adhering to a philosophy that demands a strict observance of the facts of reality (honesty), our real-life Henry F. Potter has proven to be the real hero in our real-life saga, “It’s a Wonderful Life”. His home mortgage borrowing clients, his employees, his bank’s shareholders, and the communities that they come from are all better off for his rationally selfish pursuit of profit and growth, and steadfast refusal to “take a chance on making mistakes”.
Not so for our villain, the real-life George Bailey, who was guided by a philosophy that “labeled downpayments as ‘nonsense’ and said credit score requirements are ‘still much too high’ ”. He wasn’t about to let any cold-hearted long-term principled strategy upset his altruistic plan to ‘take a chance on making mistakes rather than foreclose on the opportunity’ to put minorities and other underserved families into homes of their own.” What has happened to these adults saddled with “big fat exotic mortgages”, or the employees and shareholders of the now-defunct Countrywide Financial, or the communities they came from? They disappeared into that original movie symbol of the greedy, selfish, profit-motivated banker…the graveyard of the foreclosure crisis.
Has this real-life victory of Potter over Bailey taught us any lessons? Not to the architects of the current crisis. “[W]e have made a mistake in this society,” declared powerful House member Barney Frank. “The assumption that everybody can be a homeowner is wrong. We pushed and encouraged people into home ownership - people who, in some cases, weren't ready for it. You can't act on wishes that are unrealistic without having negative consequences”. He now proposes a government-backed plan to guarantee unlimited financing for rental housing – thus setting the stage for another meltdown!
What’s needed is a BB&T moral and philosophical revolution…for the country. John Allison, our real life Henry F. Potter, is optimistic. He tells the NY Times:
“In some ways, Ayn Rand filled in the ideas of Aristotle. It’s a whopping competitive advantage,” he says. “I personally believe Objectivism will be the dominant philosophy in this country in 25 years.”
Led by people like John Allison, who recently accepted a teaching role at the business schools at Wake Forest University, a small group of committed and highly motivated activists are fighting to make that daunting challenge come true.
(As an aside, the major New York Times article referenced above, entitled Give BB&T Liberty, but Not a Bailout, is a surprisingly positive piece, considering the newspaper. It describes BB&T’s growth under Allison, and how his philosophy acted as a guide not only for its long-term growth but also for steering the bank through these tough times.
(But the author can’t resist taking potshots at Rand and Objectivism, and I can’t resist returning my own. He hurls the usual kind of empty Rand criticisms that are impossible to refute, because they say absolutely nothing. For example, he claims that Rand can’t even qualify as a philosopher…because a poll said so. He apparently believes that facts are determined by popular opinion…just the kind of second-hand mindset that Rand condemns in The Fountainhead. As Craig Biddle writes at Principles in Practice:
("[T]he article includes a smear by subjectivist philosopher Brian Leiter, who expresses his wish that Rand is 'irrelevant' and that her ideas are 'simple-minded in the extreme' and 'embarrassing.' Well, I suppose her ideas would be embarrassing to someone such as Leiter, who, in the article, exposes his method for answering such questions as whether or not a given person is a philosopher: Take a poll."
(The reason why Rand’s philosophy is not for Leiter & Company is that it is for those who are willing to think for themselves rather than follow the herd, and who are not embarrassed by clear, straightforward arguments, which characterize Rand’s work.
(That the article's author, Andrew Martin, can carry Leiter’s denial that Ayn Rand qualifies as a philosopher, in the very same article in which he describes a major corporate success story demonstrating the eminent practicality of Objectivism, is an irony that is apparently lost on him.)
Old Man Potter Lived a Wonderful Life—Tom Mullen for FEE
"It's a Wonderful Life" - in Real Life