2023 Financial Markets Conference - Old Challenges in New Clothes: Outfitting Finance, Technology, and Regulation for the Mid-2020s

Keynote Address: Charles Calomiris

The Monday evening keynote featured Charles Calomiris, director of the Center for Politics, Economics and History at the University of Austin and former Henry Kaufman Professor of Financial Institutions at the Columbia Business School, who spoke about the Florida land boom of the 1920s, and moderator Larry Wall, director of the Atlanta Fed's Center for Financial Innovation and Stability.


Larry Wall: We're about ready to get started. Good evening. I hope you enjoyed this morning and this early afternoon as much as I did. I'm Larry Wall from the Atlanta Fed, and it's my honor to be able to introduce Charles Calomiris. We've been talking up here, and we've known each other since 1988, so let me tell you a little bit about him.

Professor Charles W. Calomiris recently joined the University of Austin as its director of the Center for Politics, Economics, and History. Prior to joining the University of Austin, Calomiris served as a Henry Kaufman Professor of Financial Institutions at Columbia University, and as a professor of international and public affairs at Columbia School of International and Public Affairs. He has been active in banking and financial circles for some time. On the regulatory side, he has served as a chief economist and senior deputy controller at the Office of the Comptroller of the Currency, and he's been a visiting scholar at many central banks and regulatory agencies.

Of course, when he's not regulating, he's critiquing the regulators and other policymakers as a member of the Financial Economists Roundtable, the Shadow Open Market Committee, and as a distinguished fellow at the Hoover Institute.

Now, I could spend most of the rest of our time before dinner discussing his many publications, but instead I would like to briefly call attention to one of his many books, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. This book provides a cross-country analysis, discussing the political economy of why some countries have stable banking systems while others have fragility baked in by design. Charles was kind enough to summarize the analysis of this book for this conference in 2013.

Tonight, we'll be treated again to Charles' passion for financial history that has some contemporary relevance. In this case, the Florida land boom of the 1920s. Charles?

Charles Calomiris: Thanks so much, Larry. Thank you all. It's such a pleasure, such an honor, to be here. The Atlanta Fed is a special place. It's a place with a president who's a banking economist. That's a pretty good thing. If you want to know how old I feel, I remember when Raphael was a new banking economist. Now I look and I see a lot of gray hair. That makes me really wonder how old I am.

Larry, of course, there was a predecessor, you might say, to this event called the Chicago Bank Structure Conference at the Federal Reserve Bank of Chicago, where many of us experienced the same kind of camaraderie that you're experiencing here, and it gave economists a chance to meet non-economists, which is another wonderful thing that this conference does. It's a pleasure to be here.

I'm going to talk for 20 minutes about a paper that I've just completed with my friend and colleague, Matt Jaremski. As some of you know, Matt and I have been writing a lot of papers about banking crises in history, together and separately. This paper came out of some work that we both were interested in for a long time, which was to understand one of the most important land booms and busts that happened in US history: the first Florida land boom and bust.

Again, it's fun to be able to present this here, because, as you'll see, Florida was kind of a wild place 100 years ago, and that's what we're going to talk about. This has been something that has been very puzzling to me through most of my career as a banking economist, because I really wanted to try to understand: How could this have been funded, exactly? You'll see why that was puzzling to me, and I can now report to you—I hope this will get your attention—that I'm no longer puzzled.

That doesn't mean I have all the answers, but I'm no longer puzzled by what happened. I know what happened. As I was telling someone earlier today, I think I probably would have bought some of this land myself. It's really an important thing to say. Those are kind of the same thing: that I'm not puzzled, and I probably would have bought some of it myself.

First, just to show you the way sometimes we hear about these crises: this is Galbraith writing in 1955, thinking of a kind of object lesson in the arrogance of America, that we all thought that we deserve to be rich or something. This was the first indication of this whole orgy of the 1920s. Then just a more descriptive, more contemporary account, that just talked about the devastation and the shocking reversal, and I'll try to see if I can portray that for you a little bit.

Most of Florida was not actually built during the boom, although sidewalks were. This is a very interesting quote because what it tells you is: imagine developments where all that you had was street lights and sidewalks, but you had a lot of them, and then it all stops, because the plans stopped. How did that happen?

It gets even more puzzling. The population of the United States at the time was about 40 million, and as far as we can tell, about 20 million lots were sold during this land boom. That's just preposterous, right? You can't really imagine that half of the population in the US was interested in buying something in Florida, to move to Florida, and yet that seems to be the case.

We don't have good price data. You're not going to see any house price data here, because the data don't exist. Anecdotal evidence from particular records and newspaper articles and things like that are indicating, over some part of this, maybe in some locations, prices increasing by a thousandfold. I don't want to push that too far, but just to say they were going up pretty fast during the heat of it.

The really interesting part for me, of course, was this next fact: nearly $900 million, which is a very huge sum of money in the 1920s, in deposits is flowing into Florida from investors throughout the nation. Most of the funding of this is actually coming through the traditional bank deposit market, and it's coming from out of state. That's really interesting. Florida banks that are funding this are getting huge amounts of influx of deposits. What were those depositors thinking? That's what I wanted to know.

Then, of course, when it ends a lot of banks suspend, and most of those who suspended failed. In fact, over 10 percent of the Florida banks suspended. I'm going to talk about this last little fact: almost all of those that suspended and failed were part of one chain of banks. I'll explain what a chain is. They're not all owned by Mr. Manley and Mr. Anthony. They simply have a headquarters, actually in Georgia, in which they operate a chain of banks in both Georgia and Florida.

What a chain means is opportunities for investment come through headquarters, if you want to take them, and that is not mandatory. I want to emphasize: they did not directly control the banks that were in this chain. The chain banks operated independently, but they were linked through this network that these people had set up.

Of course, when we step back and look at the literature on financial crises and special land booms and the banking crises that are associated with them ... many of you have read Hyman Minsky's work, or Kindleberger and Aliber's revised book. To make that story short, I'll just say: cycles of greed and fear, followed by cycles of greed and fear, et cetera.

The recent research on looking deeply into individual banking crises often doesn't really follow that. I don't want to say that it never happens. For example, there's a new literature in the last 20 years that has quantified, for example, that monetary policy cycles tend to be associated with changes in the pricing of risk. That during times of land booms, we tend to also see, if monetary policy is very accommodated, for example, in driving a sort of asset price boom, that it's not just the riskless interest rate is low, but also interest rate spreads tend to be low. Most of that literature has argued that in fact, monetary policy tends to encourage people to price risk low, and pricing risk low is all part of that stage of the cycle of greed. Fear is when you price risk high, or as they say in Wall Street, "Risk on, risk off."

That's kind of the standard story people like to tell about how these preposterous events happen. However, there's also a lot of literature that says that's not what's going on. Mark Carey's dissertation at Berkeley was all about the land bust in agriculture here in the United States in the 1970s and '80s, which argued that it was government subsidies through the federal land bank system that really was responsible for a lot of the mispricing of land.

We have a bunch of different stories, and I just want to throw out there for you that we came to this with a puzzle, which is: given all that we know about the way the bank market worked, and how the interbank deposit market worked, in the period that we're talking about, we really couldn't understand how interbank deposits of such a huge amount coming from sophisticated investors in New York and other places could have possibly wanted to fund this. One of the lessons you get from our paper and also from much of the individual episode discussions in this literature is, it's very important to pay attention to who has information, what information exists, and to the incentives that different parties are following. You'll see that that's going to be very much the key to our way to understand this.

First, I'll just show you: here are some data that we do have. Most of Florida, you couldn't really even get building permit data for, but for these three cities, you could. Jacksonville is one of them, that's the blue dots, and you'll see it lags a little bit behind. Miami is the red line, and the green line is Tampa.

First thing to notice is, this is kind of it. That is, the data that you have to look at Florida are pretty much these three time series, for only these three cities. You don't have any pricing data, but you can certainly see that during the 1920s, there's something going on, especially in these three cities, that's fairly big.

If you were buying any newspapers you also would have seen, no matter where you were in the United States, you would have seen these kinds of ads. This makes it look pretty good. For those of you who are at the beach today, you know; gosh, it is pretty good. [laughter]

I want to emphasize from the beginning, it's not like this was all wrong. What really happened here to get this whole thing started, and to get people to see that Florida was a pretty nice place, and by the way, as I want to emphasize, qualitatively, they weren't wrong. This is a pretty nice place, and a lot of us should move here. In fact, a lot of us have, and more are coming. What we want to do is we want to examine what happened. Did people act reasonably? If so, what do we mean by that, too? Focus on exactly what the banking system's role was here.

Let me tell you my conclusions in advance, because I don't want to keep you on the edge of your seat, give you indigestion or anything like that. We're going to argue that it wasn't that unreasonable, given what was going on, and given what people were able to observe, for them to have behaved the way they did.

Land was bought largely sight unseen. This might strike you as really strange, but a lot of people bought their land in Florida, that is, bought their lots and put a small down payment down on the lots, sometimes 10 percent, they did that by mail. There were developers putting ads in newspapers. One of them hired buses to tour the country to show people drawings and talk to them about what these developments were, but I want to emphasize, money is coming from all over the country through the interbank system to fund it. At the same time, people from all over the country are buying their land in Florida by mail. Now, it is true that about 6 million people in the 3 or 4 years just before the bust came to Florida, which is about 1/7 of the population.

Some people came, but a lot of people bought without coming. How did this happen? How did these huge risks, to expand land development, happen through the commercial banking system, which is actually very strictly limiting the amount of real estate lending? That's another interesting part of the story.

The answer is going to be, in part, fraud, and this is a big part of the answer. In other words, within the banking system, some banks that were associated with this chain became controlled by land developers. Those land developers decided to go all in on funding the boom, mischaracterized loans that were real estate loans as not real estate loans on a massive scale, to themselves, charged below market interest to themselves—these are all facts that we have uncovered—charged below-market interest to themselves, and paid dividends to themselves, too, that were plowed back into the same land.

This is an important fact: all these developers went bust. They were all in. They believed in this story. It was a fraud in terms of their accounting of the banks that they controlled, and that they massively mobilized funds to back themselves up. But they all were all in. How did they get away with that?

Now, here's the unpleasant part of the story: because we know that examiners and depositors work together in the historical banking system. Depositors had standards that they required banks to meet in terms of how their balance sheets looked, but in order to be sure that the balance sheets were being reported accurately, that's where the examiners came in. They were supposed to examine the banks to make sure the books were in fact accurate, and that procedures were being followed.

What we know is, from the depositor's standpoint that is, looking at the bank's balance sheets, if the banks had been all behaving honestly, they were not taking excessive risks. But many banks were fraudulent in their accounting, and here's the bad news: the regulators, the supervisors, were complicit. The comptroller of Florida, Mr. Amos, was getting side payments, and that's why he was complicit. The story for the OCC, my former employer, and now comes the tough time, because I have to tell you the Federal Reserve Bank of Atlanta, which was the supervisor, was that they were also complicit.

For example, the Palm Beach National Bank, after it was found to be in violation of regulations and lending huge amounts of money to Mr. Meisner, who developed, which, let's see if anybody knows...Boca Raton. I want to emphasize: these aren't bad places, right? After they had been found in violation, unfortunately, the Federal Reserve Bank of Atlanta lent a huge amount of money to that Palm Beach Bank. Why? Well, it turned out that members of Congress were friends of that bank and pushed pretty hard. The vice president of the United States was also a big investor in this, and he pushed pretty hard.

One of the lessons that comes out of this is when you come up with a really puzzling phenomenon and you look deeply, what you find is that all the banks weren't making bad investments. In fact, most of the banks survived just fine, but some banks were making ex ante fraudulent investments with phony accounting, self-interested lending to their own board of directors, and this was being passed over by both the federal regulators and by the state regulator.

That's kind of an interesting account because I couldn't figure out: what were the depositors thinking? The answer is: the banks, on their balance sheets, looked really good. They were actually maintaining good risk management. If their accounts hadn't been fraudulent, they would have been fine. [laughter] But here's the thing that I know from having studied so many of these cases: this kind of massive fraud doesn't happen because examiners are very good at uncovering it, and they did uncover it here, too. They just ignored it. Interesting, huh?

The rest is just the details. I know I only have a few minutes, maybe like three minutes, to go through all the regressions and other things that teach this to you, but it's not so important. The first thing I want to tell you is if you're not familiar with when Florida sort of came to life, it was all because of this visionary Henry Flagler, who set up the Florida East Coast Railway in the 1910s and then put some major hotels at a few different spots. Places like Miami Beach, Coral Gables, Boca Raton eventually, Key West, they were all points on this railway, and this railway was a big deal.

You can see here, freight and passenger traffic on that railway is growing pretty steadily over its first 10 years. Then after World War I, it takes off so that the land boom had a fundamental going on here, which was: people are moving to Florida, and there's a lot of railway traffic moving to Florida. There's a lot going on here in Florida that coincides with that land boom, so there was a fundamental driver.

Advertising was a big part of it. The people doing this, again, they were all in. What that meant was, for example, in Coral Gables more than 50 percent of their revenue from their down payments received, they just plowed back into advertising in newspapers. The newspaper ads were really ... if you know what newspaper ads looked like for this period, you would be stunned by them.

First, they're so beautiful. They're these beautiful, hand-drawn ads. Then they're so aggressive in the way they're trying to sell. I know you can't see everything here. Maybe you'll just decide to read the paper, which is available on SSRN. It's called Florida (Un)Chained, and then you'll get to see a lot of these wonderful ads. We have hundreds of them that we could show you.

One of the themes of the ads was, "don't miss your opportunity." See how beautiful their drawings are? "Immense building activity is now in progress." Very little, actually. They were building sidewalks, and little more. They called all of them things like Lakewood Terraces, or Boca Heights. Why? Because they wanted to remind you that they had a way of keeping you above the swamp. There was a technology at the time that could keep you above the swamp.

That's something that's really also worth mentioning. People knew that there were swamps here, but they also knew that we had the technology to build whole new waterfronts on the ocean by then. Swamps really weren't a constraint against real estate development if the demand was there.

Notice lists of reasons for why this is going to be so great, fantastical pictures. "Procrastination is the thief of time." This is the one that would have gotten me, because my wife says this to me. She doesn't say it's the thief of time, but she's often telling me procrastination is a bad thing. I'm sure she would have been in favor of mailing in my down payment. I doubt it. [laughter] But, anyway...

You can see these fantastical drawings of what life would be like in Florida. Before you dismiss all this as crazy, I want to tell you: I think I would have done it myself. The reason is because it was the first time in American history where if you were a lower- or middle-income person, you could have seen the possibility for a step function elevation in your lifestyle, just possibly, because this whole new frontier had opened up, the first time a new frontier had opened up in America for a very long time. When you think about it that way, it's not so crazy.

I know I'm pretty much out of time, so I'm just going to say, I'll show you a little bit of the evidence of how crazy things got. This is the Venetian Pool, the lower picture, and that's William Jennings Bryan giving a Bible class on Sundays. That was their big way of drawing people to that one. An elephant as your caddy; that was a possibility. Believe it or not, remember, it's the '20s. They're not wearing bikinis, that's the '20s equivalent of girls in bikinis. They were using a lot of different methods for getting people to come to Florida.

I'm not going to talk about how it unwound. It was inevitable that it would. What I want to emphasize about the land market in Florida is that no one had any aggregate information about what was going on. You didn't have any basis. There's no way to measure what demand was, and neither did you really have a sense of supply or the elasticity of supply. In the paper we go into some detail why, if you were looking at the market, you really wouldn't be able to tell whether you were in a situation like the solid line intersection with a very high price or the dotted line intersection with a very low price. There's just no way, even today, I couldn't assemble data that would be useful for being able to sort this out.

The market for deposits. Why was that so screwy? The answer is: well, it wasn't. I'll just skip ahead and say: first, there's lots of money coming in. There you see the flows of deposits in commercial banks during the boom, growing from $200 million to $800 million. You can see, this is a heat map that shows you how fast the deposit growth was here in Jacksonville, but also in Tampa and also in the Miami large metropolitan area.

But when you look at the two basic measures of the prudence of banks: one, what was their asset-side composition? Were they holding lots of cash? The answer is, they were holding lots of cash. They kept their cash holdings quite high, and they kept their loan holdings small, as a proportion of assets. They also had their capital and surplus quite high, and when you combine the two to use a kind of single metric of risk analysis which we develop in the paper, which we call the "loans-to-buffer," actually the banking system looked like it was declining in its riskiness over time, as loans-to-buffer is a measure of risk.

This is actually telling you a story that while the deposits are growing, the banks are actually taking on less risk, assuming that the loan portfolio is of a homogeneous risk quality. That's kind of the problem solved, and then the rest of the paper talks about, and I'll stop here, the Manley-Anthony chain, how several people infiltrated several of the banks, but not all of them. What's interesting to us is, as you can see, of the chain banks, members of the chain system, 19 didn't close, and 30 did close during the crisis. The bottom row is kind of irrelevant, but 30 did, whereas for the nonchain embers, only 7 closed out of 175.

What's also interesting is if you look at the non-chain members, when you're analyzing their risk factors—that's the ones on the left of this graph—we actually can find that banks that had poorer-looking balance sheet ratios were much more likely to fail, not surprisingly. Very few of them, because of market discipline, were able to maintain those ratios.

On the chain side, we find there really aren't any observable differences between the chain banks that failed and those that didn't, because what really was important was the unobservable risk management, which was the combination of this massive fraudulent accounting, combined with these "go get 'em" entrepreneurs and the corrupt regulators.

I'm just going to stop there. We have some other things to talk about. I'll just leave that on. Thank you for your attention. I look forward to your questions.

Wall: If you have some questions, please send them in. In the meantime, I'm going to have some observations. One, there's the old saying that history doesn't repeat itself, but sometimes it rhymes, and when you were talking about the sidewalks in Florida with no housing, I was thinking of the PVC farms that we had in Georgia, where they would clear the land, run the pipes underneath the ground, have PVC pipes sticking up out of the ground, and then the crunch hit and the houses just didn't get built, at least for many years.

Switching back to a more serious note, people were willing to deposit money in the banks then. Apparently, they trusted them and they didn't believe that they needed to be that concerned about the risk exposure. I'll carry that forward to contemporary days, when the proposals are for 100 percent deposit insurance.

Calomiris: I'm not a fan of expanding deposit insurance. The overall record of ... not including the recent episode, which is a little strange. I'll mention that in a minute, but the overall record of what informed, uninsured depositors do is a very strong record. I would even say in the case of SVB, I'm glad that the uninsured depositors created this problem for SVB, because as we know from the 1980s, the initial loss of equity when your bank becomes marginally insolvent or insolvent, that's just the beginning of the creation of loss by zombie risk-taking.

That's what happened in the 1980s, because those banks and S&Ls had entirely 100 percent insured deposits. Regulators didn't step in. They rarely do, I'm sorry to say. Because those banks were insured, they were allowed to persist. In the case of SVB and the others, they weren't allowed to persist because more than $20 billion flew out of those banks in calendar 2022, out of SVB alone. Unfortunately, the Federal Home Loan Bank filled that gap to prevent market discipline from taking hold—that's interesting—and other uninsured depositors perhaps concluded, "Well, Federal Home Loan Bank is just going to keep plugging the deposits that leave. Maybe we don't have to worry."

It's hard to know why. It's a little puzzling to me, and Philip Schnabel and I were talking about this earlier today, why the uninsured depositors at SVB weren't more aggressive earlier, because the losses were public information. I don't understand that, but what I would point to is that more than $20 billion left that bank in calendar '22, even before the bad 10-K was published, that showed how big those losses were and showed that it was marginally insolvent. Maybe there weren't more aggressive uninsured depositor actions because some combination of the Federal Home Loan Bank's actions, the perception that's turned out, unfortunately, to be true, that uninsured depositors were protected, and just a loss of habit of really paying attention to risk.

These depositors, I'm happy to say, were paying attention to risk, and generally speaking around the world today, I would say when I look at the Argentine case in the 1990s, the Colombian case in the last 20-30 years, the Chilean banks, places where they've been very eager to preserve market discipline, that market discipline continues to work pretty well. I even think, in the case of SVB, we're glad that that bank was shut down, and we have the uninsured depositors to thank.

Wall: What was the ... you kind of rushed through things ... what was the process in Florida that brought about the unwinding? How fast did it go back then?

Calomiris: It starts toward the middle to end of 1925. Two events happen that start to get people's expectations to be shaken. One of them is that a boat becomes sort of jammed in a harbor, and it cuts back on boat traffic. The other thing is that there's a moratorium on railroad shipping of nonperishables. These were idiosyncratic events. They didn't have any long-term significance in and of themselves. What they did was, they showed people how fragile the Florida infrastructure environment was, because people really had serious trouble just getting supplies and making things work. That created a lot of questions that people asked.

That's the best I can do to talk about precipitating events, but soon ... I didn't mention, by the way, the press. It looks like many of these developers also bought newspapers. They also wined and dined newspaper writers to say favorable things, but there was one guy, named Harold Keats, who was a naysayer and actually called out his fellow journalists for being on the take. He really was making a lot of fuss toward the end of 1925, and he started getting more attention because of these two shocks. That's the best I can come up with.

What's interesting, though, is when you read Harold's articles, he has no evidence. He has no negative evidence, either. There are no statistics. All he could say is, this doesn't seem like it all adds up, but he didn't have any statistics. He was traveling around to different locations. Even the developers themselves were very local, so they didn't know what was going on all over Florida. Nobody did.

When it came apart it was because people came to the conclusion that Florida wasn't as strong, hadn't developed the infrastructure of a developed place that was compatible with the amount of growth of the housing stock. That's the best I can come up with.

Wall: Picking up some of the questions we've got. One is: Do you see any parallels between the dynamics of 1920s Florida and another boom-bust, and other new boom-bust markets, like cryptocurrency?

Calomiris: I don't see any obvious parallels, and I know it's frustrating, because my MBA students, they hate it when I say, "Well, I've got one explanation for this. I've got a different one for that," right? But that's kind of the way history works. I can't think of another episode, which is why Florida was so puzzling to me.

To address the thing about cryptocurrency: when I was at the OCC, we were pushing very hard to allow fintech banks, and including stable value cryptocurrency banks, to obtain charters, national bank charters. Our view was that what was lacking in a lot of crypto was credible examination. That's exactly the same thing. It wasn't the finest hour for the OCC in the 1920s in Florida, and it wasn't the finest hour for the Federal Reserve Bank of Atlanta or for the comptroller of Florida. Generally speaking, they've had finer hours. The OCC, and generally our regulatory apparatus, could do a world of good to crypto because, as many of you know, currently a lot of crypto assets don't have credible accounting.

In fact, the most popular stable value coin, as far as I can tell, doesn't have credible accounting. I don't think crypto stable coins are a bad idea. They're an excellent idea, but they are lacking exactly the same thing. Despite the Florida experience, I still believe the OCC could do it.

Wall: Switching to that sort of question, another one here is: What is the lesson for policymakers? How do we avoid the same sort of thing?

Calomiris: That's a tough one. I guess one lesson is, don't think that market discipline doesn't work in the deposit market just because this happened. Market discipline worked fine if policymakers had been doing their job, too, if regulators have been doing their job. Don't blame the markets for the things that you caused, right? That's a good lesson.

I can't think of any other obvious lessons. I'll point, though, to one more, which is: if you read Gary Gorton's Jackson Hole paper from 2008, one of the things that he said contributed to the excesses in the housing bubble of, I would say 2003 to 2007, was the lack of aggregate information about the total outstanding amount of risky mortgages. That's a really important point, so that data, especially when new markets are being created and you're trying to figure out "What is the aggregate exposure? What is the size of this?" that can sometimes be the most important fact that nobody knows.

As a policymaker, as the Fed, I would say: be aggressive about collecting data. When I was at the OCC, I was very big on creating models of bank risk, and I don't want to call anyone out here or call out my former employer, but it seemed to me like we should have a real-time model of the entirety of the bank's franchises' risk, that an economist, an econometrician, would find useful and respectable. When I went there, we didn't.

It seemed to me that it's important to think about data, because data can inform the market. If people in Florida, and all over the United States, had had data on just the aggregate size of what was going on, even the developers themselves probably would have taken less risk.

Wall: Another question. I'll ask it as it is here, and then I want to generalize it a little bit: The size and scope of the numbers you mentioned were quite high for the time. Was the effect more localized or national? Was it mostly an East Coast phenomenon? The way in which I'll generalize it is: When you see these bubbles, at least things that ex post seem to have been bubbles, is it that there's a bubble here and the rest of the economy is operating normally, or is it that the whole economy is bubbling over?

Calomiris: There was a general real estate expansion going on in housing throughout the country. Florida was just the extreme case, and it was also extreme in the sense that it was the place that people from outside were investing to. Everyone was experiencing local increases in real estate value throughout the country, but Florida was just beyond anything like what was going on elsewhere. It was also unusual because it was the place where money was coming from, both deposit money from big cities, but also individuals.

If this statistic that I cited is even close to being true, that there were 20 million lots that were purchased, that can only be true if people from all over the country are involved in buying real estate by mail. Or the six million, that's a kind of amazing number, too, that visited Florida. Florida was unique. This was the first time, it seems to me, that there was a nationwide boom in a particular part of the United States, right? I mean, you could say this happened in Kansas in the 1880s, to some extent; you could say that there are different things on the frontier as it was expanding, but this was kind of different.

Remember also, national advertising is really becoming a big deal, with radio and with newspapers and travel. People are starting to think of themselves as part of a nation, in a new way. It was a little different, and Florida ... this really was unique.

Wall: Generalizing though, because you've studied many similar experiences in the past, is it usually the case that if it's one area that bubbles over and is especially bubbly, but the rest of the economy is kind of bubbly as well? Or is it typically the case that most of it looks reasonably solid, but one piece of it because that has a lot to do with how one thinks about going about analyzing financial stability issues?

Calomiris: In this case let's say, and maybe I would say generally, we know that there's an aggregate interest rate movement, that we plot on graphs, and there's also an aggregate risk-pricing spread, and we know that those things tend to move in cycles. We know that the housing cycle also is a big part of the business cycle. Some people call the business cycle the housing cycle, right? This was a case that was similar, in that sense, that there was a similar national uptick in housing prices.

To try to get to the core of this question, if I'm understanding it, it makes it more likely that people can get very excited if everyone's already a little excited. But there's no evidence that there was a risk-loving moment here, at least the way I can see it in the market.

Wall: You seem to assign the blame to the supervisors rather than to the greed of financiers. Isn't the latter an essential agreement?

Calomiris: I'm not assigning blame just to the supervisors, but I'm saying it's a combination. These guys are committing fraud, no question. They're the ones driving the bus, and the bankers who bring these people in and allow them to do it because its real estate developers going onto the boards of the bank, borrowing from the bank. There's a lot of blame to go around, but it's confined to about 25 or 30 institutions.

I'm not so shocked about that. The thing to me that was shocking was that the comptroller of the currency was getting loans from these guys, or that members of Congress were successful in getting the Federal Reserve Bank of Atlanta to make a loan to a bank that had already been identified by the OCC as a bad one. I'm not exonerating the OCC, either. I'm just saying, it was a joint effort, but we're always more surprised when people who behave honestly, behave dishonestly.

I just want to be clear, because I don't want to give anybody the wrong impression, having worked at the OCC, having been with the Fed, various Feds, for many years. This is a crazy exception. That's what makes it so interesting and surprising. I'm not saying that they were to blame, but I'm saying ... let's put it this way: You couldn't have had such a big boom and bust crisis if the supervisors hadn't been complicit.

Wall: Okay. With that, Sherilyn was sending me the signal that it's time for you to get your award: supper. Thank you very much. I found it very interesting, very insightful.

Calomiris: Thanks so much, Larry.