Guest post by Chris Chinn. You can follow him on Twitter @yeloson.
In the November/December 2013 issue of Foreign Affairs, there’s an article by entitled “Why Banking Systems Succeed — And Fail
The Politics Behind Financial Institutions”.
The essay starts on obvious and solid ground — that the political interests of varying groups in any society shapes how its banking policies are made — but along the way drops out the culpability of the banks in the 2007/2008 crisis. Instead they place the blame on the government regulations and special interest groups in as the primary driving force in the bank collapse, while pretending there wasn’t a massive profit incentive for the banks in the whole process.
In other words, in their view, the fault for the collapse lies with regulations designed to make banks consider low-income people for financing, rather than with the trading around of mortgages.
Let’s review what’s wrong with this claim and what really happened: