Economania

When you get a 'loan' from the bank...

there's no loan, not as you or I would know it. There's no actual transfer of funds. The money that appears in your account as a deposit is created by the bank, literally from nowhere. This is where most of the money in the world has come from, it's how money gets born, if you like. This money creation is usually conditional upon your prior agreement to eventually hand that new money over to the same bank that, with the aid of your signature, created it, together with some more money too (interest). Most people have absolutely no idea this is how banking works.

In 1872, during the premiership of William Gladstone, an attempt was made to document the ownership of land in Great Britain. The catalogue was to be known as The Return of Owners of Land. The whole project was fraught with difficulties, not least because the House of Lords then comprised almost entirely the land-owning class while the House of Commons was around 70 percent representative of landowning interests in one form or another. Only 5 percent of the adult population had the vote. This 'second Domesday Book', as it was called, was less than comprehensive in determining exactly who did own the land but it did reveal that the entirety of England, Scotland and Wales was owned by 4.5 percent of the population. The Return of Owners of Land was published in four volumes, of about 2,000 pages in total, over the next three years but after that Return mysteriously disappeared, some even claiming it did not exist.

Even now, in this 21st century, with all the marvels of digital technology and the scrutiny of the state - which seems otherwise to be able to poke its nose into almost everything - the ownership of over a third of the land in Britain still cannot be ascertained.

Several times in recent weeks I have heard people scoffing at bankers and suggesting that as a profession bankers are now more reviled than estate agents and second-hand car salesmen. Bankers it would seem are to blame for the current credit crisis and the directors of our British banks are not deemed worthy of the bonuses that would accrue to them during the normal discharge of their duties.

Popular belief is that the credit crisis has been caused by reckless lending on the part of bankers everywhere. The term 'sub-prime lending' has been banded about as a generic description of this reckless lending in which bankers are alleged to have loaned money to people who could never have been judged capable of repaying the debts incurred - but what is the truth? What collective insanity overcame the banking world and caused the current crisis?

Sub-Prime Lending In The UK

Firstly, while there has been a loosening of credit restrictions over several decades in the UK and while the total of both national and consumer debt is higher than at any time in our history, there has not yet been a massive wave of loan defaults in this country and certainly nothing has happened on the domestic consumer front that could be blamed for the collapse of Northern Rock and the demise of Bradford & Bingley and HBoS. Yet the British public have been stunned by these events and the subsequent announcements that our banks have desperately low cash reserves, such that their liquidity ratios are so out of kilter that they are terrified of lending to each other and disinclined to lend further to the public either.