http://blogs.wsj.com/economics/2013/04/09/why-canada-can-avo...Mr. Calomiris argues that in the U.S., a coalition that emerged in the 1990s of government, big banks and activist consumer groups came helped fuel the housing crisis. Regulatory changes opened the door to a wave of mergers and acquisitions that created today’s megabanks. But banks still had to get approval – usually from the Federal Reserve – to complete those mergers and outside groups were able to weigh in on the wisdom of the deal as part of the Fed’s decision-making process. Community groups, with the Clinton administration’s encouragement, used the Fed’s approval process to extract binding concessions from banks to loosen underwriting standards for poor, urban communities – concessions to which the Fed agreed, Mr. Calomiris argues. The banks had to apply the looser standards to everyone. That helped fuel an explosion in poorly underwritten mortgages that contributed to the depth and severity of the housing crisis, he contends.All in all, Mr. Calomiris’ theory is a bleak one for the ability of financial reform efforts to make much of a difference. “Smart economists with their regulatory ideas are sort of dead on arrival,” he said. “Political coalitions will decide — not whether you’ve got the right VAR model — [but] whether a banking system is going to be set up with rules that will lead it to be stable and have abundant credit or not.”-------------------------------------------------------Interesting article, and basically the same conclusion Reckless Endangerment came to.
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