Fanny and freddy can get into the following business: You're a private bet, you're a commercial bank, you sell me alone. I only have to put a dollar and 60 in capital behind that same loan because i h've adiferent capital standard. Co me two dollars and 50 cents behind that loan because i have a different capital standard. This creates tremendous incentive for me, as as a government g s e, to be in the business in buying your bad loans and selling a bat anand i want it so the banks only lead fanny andfreddy in to the extent that that it's in their interest that fanny and f reddy get into this
Charles Calomiris of Columbia University and Stephen Haber of Stanford University, co-authors of Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, 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.