Tim Geithner tells us of his life as a fireman:  constantly on call to extinguish a fresh blaze.  His baptism of fire, as it were, was in the Mexican financial crisis of 1994:  he gained more fire fighting experience when called out to Thailand – followed in short order by Korea, and then Russia.  There was a period of recuperation, until the mother and father of all conflagrations broke out close to his fire station.  From his extensive experience of these blazes, he warns us to keep a close eye out for any signs of flames and to apply overwhelming jets of water at every opportunity.

But there are many things wrong with this analogy.   The fires in question are not natural phenomena, like hurricanes and earthquakes, or even bush fires.  They are the product of human agency, and although Mr Geithner has noticed that wherever he goes the same group of arsonists have been there ahead of him, he has nothing but disdain for ‘old testament moralists’ who think it might be better to let some buildings – and their occupants – burn.

      And the stuff used to douse the fires is not cold water: but the liberal supplies of credit that were used to set the blaze alight in the first place. Better, perhaps, to limit access to matches and petrol and construct firebreaks. Perhaps the problem is one for the police as well as the fire service, and handcuffs might be as useful as the fire hose

A different account of the origins of financial crises is to be found in a recent book by Charles Calomiris and Stephen Haber.  Calomiris and Haber begin with an obvious question which Mr Geithner has not thought to ask.  Why are financial crises common in the United States, and even more frequent in that country’s southern neighbour, Mexico:  but almost unknown north of the 49^th parallel?  Mark Carney is rightly admired for his handling of the global financial crisis, but perhaps the key fact is not that he is Mr Carney, but that he is Canadian, and the bank of which he was Governor was the Bank of Canada.

Readers of my last column may speculate that Canadian stability has something to do with the temperature – and Haber, one of the authors of Fragile by Design, has written  a recent essay asserting a link between  climate and political institutions. The thesis of the new book is that the incidence of financial crises is the outcome of local political conditions.  They describe ‘the Game of Bank Bargains’, in which the structure and behaviour of a nation’s banking system is the outcome of a tacit compromises between competing and cooperating interests mediated in a political arena.

Britain had no banking crises in the course of the twentieth century, – there was a minor blip in 1974 – but many in the century before, and a spectacular one in 2008.  The outcome of  the UK’s ‘Game of Bank Bargains’  by the late nineteenth century was an oligopolistic commercial banking system,  underwritten by implicit mutual support between major institutions and the application by the Bank of England of ‘Bagehot’s rule’ – land freely to solvent banks on sound collateral at penal rates.  A structure which was dismantled in the 1970s and 1980s in favour of a more competitive banking sector and the drive to make London a global financial centre.

The United States had a uniquely fragmented and fragile retail banking structure, the product of a long term alliance between community bankers and agrarian populists, made possible by a system jealous of states’ rights.  This was replaced towards the end of the twentieth century by a network of financial conglomerates controlled by deal makers and traders.  Their alliance with local leftist activists stimulated the sub-prime mortgage boom; a new, bizarre and disastrous play in the Game of Bank Bargains.

Calomiris and Haber describe Canada’s mortgage market as displaying ‘enviable dullness’:  but they might have applied the phrase to Canada’s financial system and some might extend it to the country itself.  Capital markets, regulatory institutions, and  the behaviour of people employed in the financial sector, are neither predetermined nor universal, but  the product of culture, history and the  political system.   That is a perspective effectively developed by Calomiris and Haber.  It is one completely absent from Geithner’s account.