All very well, but you missed the money creation that banks do. let's say you deposit £1000 with a bank. The bank knows you are unlikely to ask for more than certain percentage of that back at any one time, let's say 10% to keep the sums easy. So they need to hold £100 in reserve to pay you what you might ask for, that gives them £910 to lend out and earn interest on. A loan is trreated like a deposit, ie if you borrow £910, you're only likely to ask for £91, leaving £819 the bank can lend. If that sounds like tosh, bear in mind how much lending is done for mortgages and when you buy a house no real money changes hands, so that's money the bank don't actually need to have, only that they can claim to have and hacve security (the house) to back up that claim. This is called the bank multiplier, and in this example it's 10. Ok, so fine and well. However, in recent years, technology has progressed away from money handling. Apart from beer, dinner money and shopping less than about £10, i hardly ever pay for stuff with money - books? Amazon, petrol? plastic, shiny bike bits? wiggle, motgage, insurance etc,? direct debit. That means that the bank needs to keep less in reserve to service my cash requirmwents, which ups the value of the bank multiplier. BUT in more and more cases, the mulitpier is not covered by assets, or the same asset is being used to cover all debts. Ok, dodgy, but workable so long as everyone has faith in the banks. So that's Northern Rock for you. This also means that there's a lot more apparent money in the economy than real money, so the assets being used to cover the debt become more valuable - house prices shoot up. But house prices are volatile, if they begin to fall, then the debts are not covered by the value of the assets, and people begin to lose confidennce in what was a fairly ropey conept to begin with, and the w/banking system begins to hover on the verge of collapse. What is money? It's the tool banks use to make even more money. when things were going well and everyone believed them, they were making more money than they knew what to do with. Literally. So they lowered the bar with regard to risk and began lending more to people who were less likely to be able to pay it off (sub-prime and 5x annual income mortgages), which is all ok so long as the assets covering the debt do actually cover the debt. But in a volatile propery market, that isn't guaranteed, and we pretty much all know what happened next. Especially once all the sub-primes started defaulting and prices at that end of the market were less robust.
So it's not just a systemic failure, there was a large degree of incompetence and greed fuelling the excessive lending. tyhere's also the fact that where there limits to the extent to which a bank can use the bank multiplier, many banks just packaged their debts and sold it on to someone who, not being a bank could side step the banking regulations. This allowd the banks to reset their current lending risk to 0 and start lending again, arguably afailure in the regulkatory system, but also arguably cause by short-termism and greed by the bosses of the financial institiution.
Amd I cannot understand why anyone working in a bank deserves a bomus. Bonses are for when times are good. They're not. I cannot imagine what it must be like for someone with a family to support who has lost their job yet sees the banks, who were not only responsible for this mess, but were bailed out to the tune of £17k by every single person in Britain, paying bonuses to their staff. I've been paying my mortgage, just like I'm suppossed to, do i get a bonus? 10% is a month and a bit's mortgage - if they've got money to blow, why not blow it on the people that are suffering because of their institiutional greed and incompetence?
<< and breath >>