In their new book, Fragile by Design: The Political Origins of Bank Crises and Scarce Credit, Charles Calomiris and Stephen Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why some endure while others are undermined, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues. In this excerpt, the authors outline the premise of their argument that banking systems are only as strong as the policies that regulate them.
This readable, erudite, myth-busting tome has a somewhat ambiguous title. By calling the banking systems of the U.S. and other nations “fragile by design,” Columbia University finance professor Charles Calomiris and Stanford University political-science professor Stephen Haber are not claiming that the designers of these systems intend them to be fragile.
In their new book, Fragile by Design, Columbia University professor Charles W. Calomiris and Stanford University professor Stephen H. Haber explore why banking systems are unstable in many countries—but not in others. For example, the United States has had 12 systemic banking crises since 1840, while Canada has had none.
» See full article in the Economic Policies for the 21st Century.
In their new book on the history of banking, “Fragile by Design,” academics Charles Calomiris and Stephen Haber make the compelling argument that a country’s propensity for frequent banking crises is linked to the ability of populist elements to hold the banking sector to ransom.
The emerging markets are in turmoil. Stocks and currencies are falling. Global investors are pulling money out of stocks and bonds. Is another crisis looming?
To answer that question, the World Bank in February held a panel discussion led by authors of three books examining lessons learned from financial crises. Mahmoud Mohieldin, World Bank Group president’s special envoy, said the three books can help policy makers examine the current turmoil affecting emerging markets, along with the hypothetical diagnoses proposed by some commentators: distorted asset prices, questionable growth foundations, human behavior, and overborrowing by households and the private sector.
Tom Sutcliffe discusses money with the American economist Charles Calomiris, who looks back at the history of financial disasters and argues that they’re caused more by government failures, than individual bankers.
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.
Calomiris and Haber talk with EconTalk host Russ Roberts about their book. The conversation focuses on how politics and economics interact to give some countries such as Canada a remarkably stable financial system while others such as the United States have a much less stable system. The two authors discuss the political forces that explain the persistence of seemingly bad financial regulation. The conversation includes a discussion of the financial crisis of 2008.
The Political Origins of Banking Crises and Scarce Credit