There was a pivotal weekend shortly after the run on Northern Rock and others as a result of Leahman Bros caving in back in 2007. Senior politicians, the Bank of England and key people of several failing banks spent a weekend around the table just trying to fathom out each bank's exposure to toxic debt and what to do about it. Without intervention, the entire system could have collapsed causing global economic meltdown. It was Gordon Brown and his lot who presided over this and it was he who claimed victory in saving the economies of western world. How arrogant and hypocritical!? It was his party who deregulated and allowed banks to engage in risky practices.
Regulation at that time meant that banks had a very low Tier 1 ratio (amount of actual capital they had in their coffers versus the money they had out in loans) and they had of course bought debt from other banks. In the event of a default caused by the knock on effects of Leahman's collapse, (or any other bank), how would a bank meet it's liabilities? Indeed, how would they even know what their exposure to toxic debt would be until their debts turned bad. Government had stepped in to shore up several banks already at that stage, but would be unable to keep doing this as the they had already spent all of the reserves built up by the previous administration. In fact, the reserves were long gone and government borrowing was escalating exponentially. They really had made a spectacular mess of th nation's finances. Our grandchildren will still be paying off their profligate spending splurge long after we have gone!
The uncertainty of the situation meant that banks were scared to lend to each other. The markets reacted and banking stocks slumped. After this big powwow meeting, it was decided that a banks Tier one ratio should be doubled from 3% - 6%, to better equip the bank to meet its own liabilities. How on earth would banks find the money? They were exposed to untold liabilities that they didn't yet know about. They still don't know about!
So it was decided by government to print money to prevent the banks going bust. This then happened across the western world. The overall effect was to devalue our currency, to inflate our way out of debt. This is still ongoing and I believe we have a long way to go yet. So expect more quantative easing and much more inflation to ease this situation ( we import too much from countries little affected by national and personal debt). As the other Western economies are doing the same, we haven't really felt a huge change between the currencies of the US and the Euro.
Gordon Brown and his lot, seemingly naively suggested that all the freshly printed money they had just given to the banks would be passed on to us in the form of loans and that this would stimulate the economy and get us out of the rut. Alistair Darling and his mate Gordon appeared to have written a blank cheque to the banks, but without getting any commitment as to how the banks might help the wider economy and the people who had saved them. They then proclaimed that everything was sorted and patted each other on the back. The merchant bankers had a bonanza and paid themselves record bonuses, just like the cheating gamblers that they are - scumbags!
Several years later and we are on the umpteenth lot of quantative easing, with more still to come.
I believe that many British banks were going to gradually discover that they were bust as they discovered the bad debt they had taken on from the US sub-prime bubble of the early 2000's. I think this is still going on and each time a bank runs into trouble, is when they go cap in hand for some more QE.
I therefore conclude that the politicians were telling us a big fat lie when they said that all this money given to banks was to eventually benefit us. In effect, tax payers are funding the extortionate and enduring rescue plan for banks. This is galling when you consider how they have never given us such a shockingly raw deal as they do now! As you know, interest rates are 0.5%, but they are typically charging more than 4 percentage points above this for loans. I have friends with tracker mortgages taken out before 2007 as low as 0.45% over base. 1% was commonplace. So banks are charging four to ten times as much to lend money as they did pre 2007. The amount of capital you need has increased massively and you righlty now need to be creditworthy, rather than self-certify. Savings rates are derisory, rarely meeting or exceeding inflation.
What a monumental travesty of justice? Politicians tend to blame casino banking, but it was clearing banks that lent too much as well (and to the wrong people). Governments presided over deregulation of the banking system. They wanted the additional taxes from all of the resulting economic activity produced from opening the floodgates. Ultimately, the blame rests with those in charge: politicians, mostly Labour politicians! And still the ignorant people vote Labour do so because of the free stuff they get and because they misguidedly believe the Labour party are still the party for the common man.