Fanny and freddy can get into the following business. they're given capital requirements that are about 60%. That is forty % below those for aa commercial banks. 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 and f reddy in to the extent that that it's in their interest that fanny andfreddy get into this business. It is no accident that when the crisis occurred, well over half, and perhaps as much as two thirds, of all the toxic assets are sitting inside fanny and matern ouf
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.