The book’s [Calomiris and Haber's Fragile By Design] central argument is that the proximate cause of the financial collapse was the risky lending mandated by Community Reinvestment Act (CRA) and by affordable housing goals set for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.Which is not at all the book's central argument, it's merely part of one chapter (okay, maybe two chapters). Which, to someone who had actually read the book, would be obvious. For example, Lorenzo from Oz;
The central purpose of Calomiris & Haber's Fragile by Design: the Political Origins of Banking Crises is to explain to Americans why their banking system does not perform as well as other countries--particularly compared to that of their neighbour, Canada. In chapter 14, the authors put the matter quite starkly:Or, Lorenzo continues;
... if a highly stable banking system is defined as one that has been crisis-free since 1970, then only six out of 117 countries--Australia, Canada, Hong Kong, Malta, New Zealand, and Singapore--meet the threshold for being both credit abundant and crisis free.
In Chapter 2, The Game of Bank Bargains, they make it quite explicit that the question is always the actual structure of financial regulation:And we haven't even gotten around to mentioning that Mr. Fiderer is misrepresenting what Haber and Calomiris wrote in the chapter he did read. We'll get around to that shortly.
... the normal functioning of banks depends on three sets of property rights that only government can provide. Banks need powerful governments. But power may not be wielded in the interests of bankers unless bankers can convince the group in control of the government to partner with them.Hence the game of bank bargains. Hence also the political origins of banking crises. Or, as they say:
... our goal is to explore why banking is all about politics--and always has been.It is inherent in the nature of banking given that:
Any enterprise whose inputs and outputs consist primarily of promises to repay debts is inherently unstable and risky.Banks have to deal with credit risk and liquidity risk. Hence banks are pioneers of limited liability laws:
... in the vast majority of countries, the first enterprises to seek charters granting their shareholders a limit on liability were banks: the special limited-liability acts for banks typically antedated general incorporation laws by decades.Which brings the government into the heart of banking.