Is there hope for reform? Perhaps not, at least until we recognize a major source of the world’s government debt. When economists and politicians talk about the problem of unsustainable government debt, they often focus on the need to rein in government budgets and entitlement policies. But over the past four decades, for many countries, the most important source of government debt unsustainability has been something else: hidden guarantees for banks that behave a bit like icebergs — one can barely see them, and then all of a sudden, they sink the fiscal ship of state.
» See full article in the Washington Examiner, February 21, 2014.
The massive increases in risky mortgages and thin bank capital requirements underlying the financial crisis wouldn’t have been possible without the Fed’s willing participation. But the Fed doesn’t act alone. In this adaptation of their forthcoming book, Charles Calomiris and Stephen Haber argue that the Fed is the product of legislation and politicking that have made the banking system fragile by design.
‘Everyone knows that life isn’t fair, that ‘politics matters,’” Charles W. Calomiris and Stephen H. Haber write in their new book, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (from which we ran an adaptation here). “We recognize that politics is everywhere,” they continue, “but somehow we believe that banking crises are apolitical, the result of unforeseen and extraordinary circumstances, like earthquakes and hailstorms.” That’s simply not true, Calomiris and Haber argue: “The politics we see operating everywhere else around us also determines whether societies suffer repeated banking crises . . . or never suffer banking crises.” Fragile by Design will make you skeptical of the “version of events told time and again by central bankers and treasury officials,” and critical when that version is “repeated by business journalists and television talking heads.” The authors talk withNational Review Online’s Kathryn Jean Lopez about the book, banking, morality and politics, Canada, fatherhood, and even Game of Thrones.
By Charles W. Calomiris and Stephen H. Haber National Review Online
February 4, 2014
Leftist activists, with lawmakers’ support, worked with megabanks to lower lending standards for all.
According to CNN, Bruce Marks is “a crusader who has become a fierce advocate for struggling homeowners.” As executive director of the Neighborhood Assistance Corporation of America (NACA), Marks has been campaigning to protect homeowners in arrears with their mortgages from foreclosures. Marks told a CNN reporter, “These mortgages of the last ten years were structured to fail.”
By Charles W. Calomiris and Stephen H. Haber Foreign Affairs
People routinely blame politics for outcomes they don’t like, often with good reason: when the dolt in the cubicle down the hall gets a promotion because he plays golf with the boss, when a powerful senator delivers pork-barrel spending to his home state, when a well-connected entrepreneur obtains millions of dollars in government subsidies to build factories that will probably never become competitive enterprises. Yet conventional wisdom holds that politics is not at fault when it comes to banking crises and that such crises instead result from unforeseen and extraordinary circumstances.
The world displays an instructive variety of banking system designs, some successful, some fragile, and some crisis prone. For example, the US has had numerous banking crises throughout its history while Canada has experienced none.
Surveying different banking systems in their new book, “Fragile by Design: The Political Origins of Banking Crises and Scarce Credit,” Charles Calomiris and Stephen Haber find a common element in all: a deal between the banks and politicians. But these banking bargains vary among countries. How are these deals made, what determines their terms, and how can the US banking system be improved? At this event, Charles Calomiris will present this provocative book, and a discussion by banking experts will follow. For more information click here.
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