Why are banking systems unstable in so many countries--but not in others? The United States has had 12 systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households. Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries, Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents due to unforeseen circumstances. Rather, these fluctuations result from the complex bargains made between politicians, bankers, bank shareholders, depositors, debtors, and taxpayers. The well-being of banking systems depends on the abilities of political institutions to balance and limit how coalitions of these various groups influence government regulations.
Fragile by Design is a revealing exploration of the ways that politics inevitably intrudes into bank regulation. 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.
©2014 Princeton University Press (P)2014 Audible, Inc.
All my main interests converge in this book. The authors' labors came to great fruit in a thorough, eye-opening tour of banking in several countries and centuries. I learned more about the histories of Brazil and Mexico (despite having read other books, and traveled extensively in Mexico) than I ever knew, in a few hours.
The narratives frame banking systems and their impacts on nations as the products of a "game of bank bargains" in each nation, and in each time-frame, between various interest groups. This makes enormous sense, and is a refreshing departure from partisan screeds that lazily serve up the same pre-set heroes and villains. I like the authors' approach of blending disciplined narratives showing particular nations' contexts and nuances, in easy-to-follow stories, with some telling numbers. Various institutional weaknesses are highlighted, or flawed bargains, as sources of trouble: opposing groups can be, at best, powerful checks and balances on each other, and often these balances have become too lopsided, and banking crises are sure to follow. In this light, the collapse of banking systems, currencies, and governments makes clear sense. The result of this approach: deeper knowledge of history and sharper thinking and analysis. And all this is delivered in an accessible, listenable form.
Some with a brittle partisan pre-loaded set of desired answers (on either side) may be perturbed at turns. Some on the left will be uncomfortable when a microscope is turned onto the banker-urban-populist bargains in the runup to USA's 2008 subprime credit bust. But by the time this story is detailed, we are already well briefed on a history of unstable banking bargains in US history, among various players. This made me look with a more appraising and cynical eye at the smooth cartoons of rosy all-around public benefit and skillful crisis management produced by politicians (on either side) as their self-serving draft of history, and as an apologia for their various manipulations of banking systems.
USA's set of bank bargains, and their outcomes and present state, can be compared, apples-to-apples, with Britain, Canada, Mexico, Brazil, Chile, Germany, and more. (This is, however, primarily a history book, not specifically an update of very current events.) This book stands alongside any I've ever read in these various sub-fields. I agree with the likes of Niall Ferguson that finance gives key understandings of history, when done with smarts and disciplined scholarship. This book tells me more about why nations are where they are, than any other I can think of.
I have read dozens of books on political economics over an 18 year time period. Most are ideological in nature. This work is a work of descriptive political economics. In our partisan era most people will not recognize the value of making advanced political economic theory palatable to ordinary people in relatively simple language. Politics is always approached from a rights, morals, principles, or social justice perspective. That is like objecting to the law of gravity on the basis of its immorality or inequality. This book comes as close as any ever written to spelling out the NATURAL laws that govern political economics.
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