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Heraclitusstudent
2013 Dec 2, 6:55am
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.
What a bizarre perspective. I thought conventional wisdom was that was that banksters willfully created this mess for a quick buck, with the implicit backing of politicians - themselves backed by a majority of Americans.
- (and this popular backing continues now with general approval of policies to push housing prices up).
And the idea that countries like Canada avoids financial crises is preposterous. The same toxic brew of easy money and high home prices exist there too. They just didn't have their crisis yet.
Foreign Affairs
Why Banking Systems Succeed -- And Fail
The Politics Behind Financial Institutions
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.
In the wake of banking meltdowns, one can rely on central bankers, Treasury officials, and many business journalists and pundits to peddle this view, explaining that well-intentioned and highly skilled people do the best they can to create effective financial institutions, allocate credit efficiently, and manage problems as they arise but that these Masters of the Universe are not really omnipotent. After all, powerful regulators and financial executives cannot foresee every possible contingency and sometimes find themselves subjected to strings of bad luck. Supposed economic shocks that could not possibly have been anticipated destabilize an otherwise smoothly running system. According to this view, banking crises are like Tolstoy’s unhappy families: each is unhappy in its own way.
This conventional view is deeply misleading. In reality, the same kinds of politics that influence other aspects of society also help explain why some countries, such as the United States, suffer repeated banking crises, while others, such as Canada, avoid them altogether. In this context, “politics†refers not to temporary, idiosyncratic alliances among individuals but rather to the way a society’s fundamental governing institutions shape the incentives of officials, bankers, bank shareholders, depositors, debtors, and taxpayers to form coalitions with one another in order to shape laws, policies, and regulations in their favor -- often at the expense of everyone else. A country does not choose its banking system; it gets the banking system it deserves, one consistent with the institutions that govern its distribution of political power....
http://www.foreignaffairs.com/articles/140162/charles-w-calomiris-and-stephen-h-haber/why-banking-systems-succeed-and-fail