I Am John Galt (14 page)

Finally, there is one more meaning of justice for BB&T, perhaps a somewhat special meaning considering that it operates entirely in the Southern United States. The BB&T philosophy's section on justice states unequivocally, “At BB&T, we do not discriminate based on nonessentials such as race, sex, nationality, etc.”

In today's politically correct business climate, how refreshing to see BB&T characterize race, sex, and nationality—which have become obsessions in the workplace and everywhere else—as “nonessentials.”

So what's “essential” at BB&T? No politically correct compromise here: “We do discriminate based on competency, performance, and character. We consciously reject egalitarianism and collectivism.”

Value #8: Pride

Ayn Rand's most admired philosopher was Aristotle, and Aristotle's most admired virtue was pride:

Pride, then, seems to be a sort of crown of the virtues; for it makes them more powerful, and it is not found without them. Therefore it is hard to be truly proud; for it is impossible without nobility and goodness of character.
18

Note well that the bank's value of pride is not talking about arrogance. Aristotle would have called that “hubris,” about which he said:

As for the pleasure in hubris, its cause is this: men think that by ill-treating others they make their own superiority the greater.
19

Or as Allison puts it, pride is “the greatest of all virtues, because to have it you had to have all the others.”
20
He wants BB&T to be proud of its employees, and every employee to be proud of BB&T. “This requires that the company and its employees live the values consistently. ”

Value #9: Self-Esteem

At first blush, self-esteem may seem to be the same thing as pride. But it's not quite the same. In the BB&T philosophy, pride is what you earn by living your values, and self-esteem is what you earn by doing excellent work.

So the BB&T philosophy is clear that employees are expected to work hard for the company. Again, there is nothing politically correct about it: “If you do not want to work hard, work somewhere else.”

Value #10: Teamwork

After celebrating the intensely individual values of pride and self-esteem, it may seem strange—even a bit of a compromise—for BB&T to talk about teamwork. But there's nothing in the Randian worldview of intense individualism that says that individuals can't work together.

Quite the contrary. The best teams are made up of proud individuals brimming with self-esteem. Think about it: Who would you rather have on
your
team? Winners who have earned their pride and self-esteem, and who can help you become a winner, too? Or would you prefer losers with no pride and no self-esteem?

The answer to that question may say a lot about whether
you
have pride and self-esteem.

The false paradox of individualism on the one hand and teamwork on the other ties into Ayn Rand's concept of “the virtue of selfishness.” In her celebrated and reviled essay of the same name, she answers the question most often hurled at her by her critics:

“Why do you use the word ‘selfishness' to denote virtuous qualities of character, when that word antagonizes so many people to whom it does not mean the things you mean?”

To those who ask it, my answer is: “For the same reason that makes you afraid of it.”
21

Allison, being a businessman first and a philosopher second—unlike Rand, who was a philosopher only—uses less provocative language, more eager to persuade than to rebuke. He talks about pride, self-esteem, and teamwork, but these are all tied together by the idea of self-interest, or “selfishness” if you insist.

In the language of Rand's hero John Galt, the idea is that “By the grace of reality and the nature of life, man—every man—is an end in himself and lives for his own sake, and the achievement of his own happiness is his highest moral purpose.”

This means that BB&T's employees don't exist to serve its shareholders, and its shareholders don't exist to provide a living for its employees. Together, the shareholders and the employees don't exist for Barney Frank to provide housing to people who can't afford it. The shareholders and the employees, each individual among them, exists for his or her own sake.

So when they come together as a team—the shareholders committing their capital and their risk, the employees committing their time—it is a voluntary arrangement to mutual gain. It's Allison's “trader principle.”

When Galt says “by the grace of reality,” what he means is that no other arrangement is really possible. Any other arrangement, one in which people did not exist for their own sakes, would mean that someone was being made to do something against his or her will. Such arrangements are no better than (indeed no different than) “might makes right.” And in reality they are inescapably a formula for savagery.

Arrangements
not
based on “selfishness”—that is, not based on pride and self-esteem—can only be based on some degree or form of slavery. “Selfishness” in Rand's sense is a synonym for “self-determination,” for “freedom.”

Applied to a business like BB&T, a business dedicated to attracting people who are unashamedly proud of themselves and possessed of great self-esteem, and interested in trading their skills with others like them, it's a synonym for “success.”

Do pride, self-esteem, and teamwork—people coming together for their own sakes—mean that it would be wrong to be charitable?

Hardly. Allison and BB&T are big boosters of the United Way. Allison says it's in his own self-interest: “I wouldn't want to live in the kind of community that would exist if there weren't a United Way.”
22
And he doesn't think his own admitted self-interest makes his charity any less charitable. He says, “Because I believe it's in my own self-interest, I give more, and I give more consistently.”

At the same time, Allison is very clear that “charity is secondary.” He says, “Producing is more important than giving away, because you have to produce before you can give away.”
23

He sees what extremely wealthy men like Microsoft founder Bill Gates (whom we meet in Chapter 5, “The Persecuted Titan”) and mega-investor Warren Buffett have done, giving away much of their great fortunes to charity—and in the case of Gates, devoting his considerable intellect to the administration of that charity. Allison says, “Gates's great contribution was creating Microsoft, and the world is worse off that he's not focusing on making Microsoft better. What if Thomas Edison had quit when he was Bill Gates's age? What would we have lost?”
24

We'll see. Maybe Gates's genius—and his money—really will solve some of the world's problems. Allison is skeptical. “Because of comparative advantage, what he was special at was computers, not solving poverty in Africa, but maybe he'll get lucky.”
25

In Defense of Capitalism

After John Allison signed the document surrendering substantial control of BB&T to the whims of the federal government, after he put down the pen, after he rode down the elevator from the top floor of the tall black building in Winston-Salem and walked into the chilly November night—after he walked away from the world—where did he go, and what did he do?

Rand's hero John Galt, the man who walked away from the world, went to Galt's Gulch, hidden in the mountains of Colorado, and recruited other great minds to join him on strike against the looters, the power seekers, and the altruists. Allison hasn't exactly done
that
, but in his own affable Southern way, he's done something almost as subversive.

Instead of Galt's mountain fastness, Allison can be found on Wake Forest University's leafy campus, in a small office crammed with books by and about Ayn Rand, teaching courses in leadership and directing a growing campaign to teach the morality of capitalism in America's colleges. Like Galt, he's spreading the word.

It started when he was still at BB&T. He recalls, “For years, banks have been big contributors to community projects. It's kind of expected in the business, and it's probably a legitimate part of the business, because a lot of our clients are involved in stuff and those kinds of things. . . . Our focus . . . has always been on education. So we were a pretty big contributor to universities.”

Which makes BB&T no different than any other bank. But John Allison is very different from other bank CEOs—he's a Randian. So when he asked himself, “What is the issue that maybe we could have a big impact on?” there was just one possible answer: “Capitalism.”

Allison wasn't interested in helping universities teach economics. He was interested in helping universities teach
the morality of capitalism
—the philosophy underlying it, and the reasons why it is the only way of arranging economic affairs that is consistent with human freedom.

“There's really no economic argument against capitalism,” Allison says. “We're just losing the ethical fight. . . . And ethics always trumps economics.” In other words, no matter what heights of wealth and advancement capitalism leads the world to, it seems there's always somebody complaining about the brutality of its innate competitiveness or the unfairness of the inequality it produces. So the system that abolished slavery from the face of the earth and makes it possible for 7 billion souls to live on it is nevertheless always under political attack.

“So we've got to have an ethical fight,” decided Allison. “And of course, based on my beliefs, I said, well, we've got to get Rand into the fight.”

But that wouldn't be easy. Rand considered herself a serious philosopher, but she's scarcely taught in university philosophy departments. Perhaps it's because she chose to express her philosophy in accessible popular novels rather than in impenetrable textbooks. Or perhaps it's because she has always been seen as a political conservative, something not exactly embraced by today's liberal-dominated college faculties.

“Rand has obviously been consciously not included,” Allison claims. “Academics, they don't want her in. They're scared of her, in my opinion. She's threatening.”

So Allison decided to build an entirely new academic initiative for the advancement of the morality of capitalism, with Ayn Rand at its heart—just as decades earlier he had set out to build a banking empire the same way. “We started working with a number of universities,” he recalls. “Our first program was at Duke and we did something at Carolina. They'd agree to require
Atlas Shrugged
, and we'd say, okay. If they want to teach it and say it's stupid, that's fine. I'll let the students read it and make their own judgments.”

Building an education revolution takes time, just like building a bank did. “We're now up to 60 programs,” Allison says, beaming. “Almost all of the major universities in our footprint now, and lots of other colleges and universities. . . . And I get really positive feedback about this. I have talked to numerous students who have said, ‘Man, this course changed my whole worldview, and I am a better human being for it.'”

John Allison also has a long list of Randian recommendations for repairing the American economy in the aftermath of the mortgage crisis that nearly destroyed it.

He'd like to see the Federal Reserve stripped of its limitless powers to print money, and return to an objective standard of monetary value such as gold. He'd like to see the tax code transformed so that consumption, not investment, is taxed. He'd like to see Social Security, Medicare, and education privatized. He'd like to see immigration liberalized so that the best and the brightest can come to the United States. He'd like to see banks given more stringent capital requirements, and have them return to more traditional forms of mortgage lending.
26

Most important, he wants to change the culture. He wants the attacks on capitalism to stop, for capitalism to be embraced as the most effective and the most moral system of economic organization. And it's to that most important objective that he's devoting his attention now, through his sponsorship of university programs on the morality of capitalism.

Can he win? Can capitalism win? Can Ayn Rand's ideas win? At least for Allison, they're winning the war on the home front. He says, “My son read a lot of Objectivist stuff, seemed to agree with it, went away to college, and became very down on Objectivism. Then he graduated from college and took a couple months after he graduated, reread all the stuff, and said, ‘Wow!' He said, ‘You know, Rand's right.'”

So perhaps there's hope. Maybe someday Allison will return from academia to the world and, like John Galt, raise his hand over the desolate earth and trace in space the sign of the dollar.

Chapter 4

The Parasite

Angelo Mozilo as James Taggart, the businessman who corrupted government and nearly wrecked the U.S. economy

The controlling stock of Taggart Transcontinental was left to James Taggart. . . . Dagny had expected the Board of Directors to elect him. . . . They talked about his gift of “making railroads popular,” his “good press,” his “Washington ability.” He seemed unusually skillful at obtaining favors from the Legislature.

—Atlas Shrugged

As he sat down at the conference table for Countrywide Financial's quarterly earnings call on July 24, 2007, beads of sweat formed under CEO Angelo Mozilo's starched French collar. It wasn't the 90-degree heat outside the window of Countrywide's Calabasas, California, headquarters that wrung perspiration from his pores, but rather the agonizing prospect of what he was about to do.

He was about to lie to his shareholders and to the world. He knew he was looking at imminent ruin, and he knew that the moment he admitted it, that very admission would make that ruin actually happen. So Mozilo sweated while he prepared himself to say whatever he had to say to keep his multibillion-dollar house of cards from collapsing for at least another couple of weeks.

What he didn't know then was that the collapse of Countrywide was about to trigger a global near-depression, as the subprime credit bubble Mozilo did so much to create—by manipulating for decades the power of government for private gain—was to suddenly burst.

Mozilo is the man Ayn Rand warned us against exactly 50 years before that fateful 2007 earnings call: the corrupt businessman who forges an unholy alliance between capitalism and government. Rand's literary template for Mozilo is James Taggart, the principle villain of
Atlas Shrugged
.

Taggart, the heir to a railroad fortune, is ambitious—hungry for power, hungry for approbation. But he lacks the energy or ability to really run or grow the railroad. So he cultivates connections in government, and uses their power to obtain subsidies for his railroad and to destroy his competitors—all the while spouting high-minded rationales based on public service. By the end of
Atlas Shrugged
, Taggart's corruption and all its unintended consequences have nearly destroyed the entire U.S. economy.

Unlike Taggart, Mozilo didn't look the part of the corporate titan. With his perma-tan face framed by platinum hair, loud pinstriped suit, flashy tie, and gleaming extra-white Guy Smiley grin, Mozilo looked more like a goodfella turned daytime game show host than the head of a publicly traded company. In truth, this son of a Bronx butcher presided over the nation's largest mortgage lender, built from a two-man start-up at his partner's kitchen table decades ago.

Through the years he had positioned himself as the consummate front man of the company, the guy's guy, able to move deftly in the right circles of influence well above his lowly origins. His feelings of inferiority drove him to fight past the old-money club and eventually beat those pretentious old-school mortgage bankers at their own game. “I run into these guys on Wall Street all the time who think they're something special because they went to Ivy League schools,” he told the
New York Times
; “it bothered me when I was younger—their snobbery and their looking down on us.”
1

If you didn't look closely, you could admire Mozilo's rags-to-riches story. But the reality is that competing against the well-equipped armies of traditional bankers on the sunlit field of open competition was too daunting a prospect for this squire with dreams of becoming king. Instead of facing them head-on, he'd operate from the dim shadows cast by government-induced market distortions and conduct his business through favoritism and political pull supplemented with a healthy dose of outright deceit.

Driven by a no-holds-barred marketing campaign and governmental lobbying effort, he'd turn a modest-margin business with a consumer mind share on par with a municipal utility into a popular fad with national brand-name recognition. Countrywide's ticker symbol, CFC, would become known at one point as the “23,000% Stock”
2
for a two-decade run of 30 percent average annual gains.

Mozilo was a key architect of the U.S. housing bubble—or maybe more accurately, a key arsonist whose government-subsidized subprime mortgages were the accelerant to what turned out to be a housing and credit conflagration. All along the way he'd rationalize his actions in altruistic terms of social progress. “I gave a lot of people the opportunity to realize the American dream”
3
was his typical refrain. “Our unifying mission is to close the gap in minority homeownership”
4
was another of his do-gooder mantras. All the while, his real aim was to skim as much vigorish as possible from high-risk loans that had little if anything to do with supporting actual home ownership.

The chief co-conspirator in Mozilo's grand scheme was a government-sponsored enterprise (GSE) known as Fannie Mae (it, in turn, was motivated by a government co-conspirator, Barney Frank, whom we'll meet in Chapter 6, “The Central Planner”). By buying Mozilo's risky and sometimes fraudulent mortgages and thus freeing up Countrywide's capital so it could solicit even more business, Fannie supplied the rocket fuel that helped Mozilo blast Countrywide from obscurity past Citigroup and Wells Fargo to the top of the mortgage heap. “If it wasn't for them,” Mozilo said of Fannie, “Wells [Fargo] knows they'd have us.”
5

Why did Fannie play along? Simply because Fannie's government bureaucrats funneled tens of millions of these subsidized dollars into their own pockets in the form of outlandish salaries and incentive bonuses.
6
“These are the most successful corporate hermaphrodites in world history,” consumer advocate Ralph Nader said of Fannie Mae and the other GSEs. “[They] report massive profits, provide their top executives with huge compensation packages and laugh all the way to the bank with government guarantees. It's a paradigm of how to influence Washington.”
7

Like James Taggart, Mozilo skillfully cultivated his buddies in Washington;
that's
the one thing he was actually good at, if not downright brilliant. To make sure politicians and regulators didn't raise an eyebrow at the deteriorating credit quality of Mozilo's loans purchased by the agencies under their control, he'd buy off senators, congressmen, congressional staffers, lobbyists, local politicians, home builders, and law enforcement officials with sweetheart VIP mortgage deals under a program known as the Friends of Angelo. “Countrywide's VIP loan program was a tool with which the company built its relationships with Members of Congress and Congressional staff,” read a Staff Report from the U.S. House of Representatives Committee on Oversight and Government Reform.
8
“It was also a tool it used to protect its relationship with Fannie Mae.”

Back in Calabasas, he handpicked his board of directors, just like Taggart did, building what amounted to a personally controlled audience of dutiful admirers. Business qualifications? Don't ask—Countrywide's board included a former basketball star with nary a dribble of banking experience on his stats sheet. It was just a puppet show to provide the appearance of corporate governance and oversight. “When we had to fill a spot, I just took on the responsibility of trying to find someone” is how Mozilo explained his board makeup. “It started from me and therefore it was difficult for the board to say ‘We don't like him.'”
9

When bankers or the press pushed for GSE reform, Mozilo would rise to their defense as an “independent” industry leader operating for the social good of home ownership. “America has the world's highest rate of homeownership because we're the only country that has a Fannie or Freddie,” he'd cry out to the
New York Times
. “Nobody wins if they're damaged or impeded. Housing is the only thing driving the economy right now.”
10
When Jack Kemp, George H.W. Bush's Department of Housing and Urban Renewal (HUD) secretary, tried to scale back some government assistance for the mortgage market in 1990, Mozilo publicly denounced him as “the worst person who could possibly have been put in that position.”
11

For Mozilo, subprime lending, which began as a competitive enterprise to tap an underserved market for home financing, had devolved into a mere financial scheme. He had become the street dealer of high-risk loans sponsored by a pseudo-government kingpin who packaged and resold them in disguise, complete with a heavy guarantee unwittingly lashed to the backs of the American taxpayer. The entire cabal of players, from the home builders to the Realtors to the industry lobbyists to Mozilo and Countrywide itself, took a cut. As long as the money kept flowing, all was good in the family.

But Mozilo was sweating before that 2007 earnings conference call because the strings of personal favors done and influence purchased through the years had spun into a tangled web that now threatened to strangle him. He must have felt like James Taggart did when his railroad was falling apart, and his sister Dagny—the sparklingly competent businesswoman who actually ran the railroad—warned him, “I have no idea what sort of games you're tangled in, you and your Board of Directors. I don't know how many ends you're playing against the middle, or against one another, or how many pretenses you have to keep up in how many opposite directions.”

But there was a key difference. In
Atlas Shrugged
, Dagny's brilliance saved Taggart from himself, over and over. In 2007, no one could save Angelo Mozilo. During the prior year, Mozilo had become acutely aware that his reckless underwriting and market-share-at-any-cost strategy had generated a landfill of decomposing loans. “We have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet,” he wrote behind the shroud of internal corporate e-mail in the middle of 2006.
12
The assets, he said, were “toxic,” “poison,” and “the most dangerous product in existence.” As for the prospects of his company, he privately acknowledged, “The bottom line is that we are flying blind.”
13

Like a rat in a trap, for this man who had held tight to his founder's shares since the very inception of his company decades before, the only priority was to get out. From November 2006 through August 2007, Mozilo exercised over 5.1 million stock options and sold the underlying shares for total proceeds of over $139 million.
14
He had done a monumental job of secreting his gold out of the treasury, but as he sat there sweating in July 2007, ready to face his stakeholders, he wasn't quite free and clear yet.

He knew that any pullback in business or acknowledgment of risk to the markets would expose his house of cards for what it was, and bury his remaining fortune under a crush of rubble. In 2006 Mozilo had written about his concern that a “reputational event,” as he euphemistically called it, could destroy Countrywide's ability to offload its poison onto a marketplace tricked into thinking it was good medicine.
15
All he needed was a few more months. He had to hide the truth under a facade of business as usual. Now, on the conference call in front of hundreds of analysts and members of the media, Angelo Mozilo was about to pull off the snow job of his life—a con that would make the slickest grifter blush.

“We remain optimistic at the long-term future growth prospects and profitability of the Company,” he began on a high note. “We believe that the Company is well positioned to capitalize on opportunities during this transitional period in the mortgage business, which we believe will enhance the Company's long-term earnings growth prospects,”
16
he assured the audience.

When asked point-blank by an analyst how many shares of stock he currently held, Mozilo acted like a kid caught with his hand in the cookie jar. “I don't know the answer to that question,” he stammered. “I own, including options—I think it's around 11 million, 12 million, something like that,” all the while knowing he held a dwindling stake of just a few million shares after a blistering selling spree during the prior nine months. (See
Figure 4.1
.)