Less government needed to cure ailing economy, banker says

The country does not need more government; it needs less to get beyond the financial crisis, John Allison, retired chairman and chief executive of Winston-Salem, N.C.-based BB&T Corp., said during a visit to Richmond on Tuesday.

It needs less regulation, not more, said Allison, who spoke about the causes and consequences of the continuing financial crisis while at a University of Richmond law school forum.

"America is not the land of security. It is the land of opportunity. It is the opportunity to be great. It is the opportunity to fail and to try again," he said.

"If we continue with the free-lunch (mentality), we have a mathematical model for disaster in 20 to 25 years … unless we change direction," Allison said.

The free-lunch mentality leads to a lack of personal responsibility and that is the death of a democracy and innovation that led to this country's high standard of living, Allison said.

Americans are skeptical in general of big government and they have the opportunity now to redirect this country, Allison said.

There is some real economic growth but it is not what is ought to be, he said. "It is so much less than the potential we could have."

Allison said Wall Street greed did not cause the financial crisis. "Government policies are the primary cause of the crisis."

"If I had been in charge, I would have let institutions fail," he said, referring to the government bailouts of two key U.S. automakers and some investment banks.

During Allison's tenure as CEO from 1989 to 2008, BB&T grew from $4.5 billion to $152 billion in assets. He was recognized by the Harvard Business Review as one of the top 100 most successful CEO's in the world over the last decade.

The best course of action is to allow natural market forces to work and that sometimes involves failure, Allison said. "Keeping business in business that should not be in business is unhealthy."

The genesis for this crisis was the government's massive investment in residential real estate, Allison told the audience. The program was presented by The Federalist Society's chapter at UR's law school and the Richmond lawyers chapter.

He blamed the housing bubble on the Federal Reserve Bank, the Federal Deposit Insurance Corp. and housing policies through government-sponsored entities Freddie Mac and Fannie Mae.

The Federal Reserve, by manipulating the monetary system, kept the correction from happening, Allison said. "If you stop the failure process, you push problems into the future."

The FDIC, which insures deposit accounts, created a false sense of security in highly leveraged products. And the government's policy to encourage and subsidize homeownership sounded good, but it was the makings of an economic disaster, Allison said.

The intense pressure from politicians to meet affordable housing goals drove down lending standards and created the subprime loan market.

"Fannie Mae and Freddie Mac claimed until recently that it had no subprime mortgage when it had $2 trillion in subprime mortgages."

Stopping the foreclosure process is not helping housing recover, he said. "Until the market clears, people won't buy houses," he said. "You have to let the markets correct."

Piling on more regulations is exacerbating the problem, Allison said. "Government regulations prevent people from being creative."

Entrepreneurship is essential to job creation but it has slowed dramatically under the burdens of regulations, Allison said.

"We need to reduce taxes and give money to people who know how to create jobs."

He closed his speech by talking about how this country was founded on life, liberty and the pursuit of happiness as stated in the Declaration of Independence.