Charles Calomiris and Stephen Haber on Fragile by Design
EconTalk
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Fanny and Freddy Get Into the Mortgage Back Security Game
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
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