Financial-TimesFinancial Times
June 3, 2014
By John Kay

The mortgage market in Carney country is enviably dull – as is the broader financial system

Tim Geithner’s memoir, published last month, tells us of his life as a firefighter: constantly on call to extinguish a fresh blaze. His baptism of fire, as it were, was in the Mexican financial crisis of 1994: he gained more firefighting experience when called out to Thailand – followed in short order by South Korea then Russia. There was a period of recuperation until the mother and father of all conflagrations broke out close to his fire station. From his experience of these blazes, he warns us to keep a close eye out for any signs of flames and to apply overwhelming jets of water at every opportunity.

But there are many things wrong with this analogy. The fires in question are not natural phenomena, like hurricanes and earthquakes. They are the product of human agency – even more so than bush fires. And, although Mr Geithner has noticed that wherever he goes the same group of arsonists has been there ahead of him, he has nothing but disdain for “old testament moralists” who think it might be better to let some buildings and their occupants burn.

In addition, the stuff used to douse the fires is not cold water but a stream of liberal credit – precisely what set the blaze alight in the first place. Better, perhaps, to limit access to matches and petrol, and to construct firebreaks. Perhaps the problem is one for the police as well as the fire service. Handcuffs might be as useful as the fire hose.

A different account of the origins of financial crises is to be found in a recent book by Charles Calomiris and Stephen Haber. They begin with an obvious question, which Mr Geithner has not thought to ask. Why are financial crises common in the US, and even more so in its southern neighbour, Mexico, but almost unknown in Canada? . . .

» See full article in the Financial Times.