In a new book by Hoover Institution senior fellow Stephen Haber and Charles Calomiris, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, the authors argue that bargains made between politicians, bankers, bank shareholders, depositors, debtors, and taxpayers—as much as economic conditions—lead to banking crises. In their book, they write “the politics we see operating everywhere else around us determines whether societies suffer repeated banking crises … or never suffer banking crises.” The book is now available on Amazon.
They analyze the political and banking histories of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries. The United States has had 12 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.
Fragile by Design demonstrates that chronic banking crises and scarce credit are not “the result of unforeseen and extraordinary circumstances.” Using examples such as the US Subprime Crisis they show that banking crises are often the direct result of unlikely alliances and political opportunism.
Turning the accepted theory on its head, Calomiris and Haber discussed their book on Russell Roberts' podcast EconTalk in a special video and audio taping from the Hoover Institution's new Johnson Center in Washington, DC. The EconTalk podcast is available online at econtalk.org, and the video is available on YouTube or below.
In addition to their interview on EconTalk, Calomiris and Haber have been interviewed on the PBS NewsHour, National Review Online, and the John Batchelor Show. Featured articles about the book have appeared in Foreign Affairs and National Review.
Haber is the Peter and Helen Bing Senior Fellow at Hoover and the A.A. and Jeanne Welch Milligan Professor in Stanford’s School of Humanities and Sciences, and Calomiris is the Henry Kaufman Professor of Financial Institutions at Columbia Business School and a professor at Columbia’s School of International and Public Affairs. Both were members of the Hoover Institution’s De Nault Task Force on Property Rights, Freedom, and Prosperity.