[SpecialOFFER]

Bloomberg speaks out both sides of his mouth. The little mayor went on to say:
“We need the banks. If the banks don’t go out and make loans, we will not come out of our economic problems. We will not have jobs.”

The mayor acknowledged that the banks played a role in the economic downturn, but he insisted, “We always tend to blame the wrong people.”
Uh, sorry, but NO. The banks didn't just play a role. They were the lead actors and have to accept a good deal of the blame for where we now find ourselves. Also to blame are the supporting characters, the supposed financial wizards like Bloomberg and his buddies, who never stepped up to say, Whoa!" as we were marching towards meltdown.

Mike: Who is stopping the banks from making loans now with all that bail-out money they're sitting on? And who is forcing the banks to charge us all for the most minimal of transactions (check your mailbox for new notices with the latest surprise from those who hold your money)? And how much profit did those banks make in the past year?

So, STFU. Mike, I'm talking to you.

Banks failed to retain sufficient capital for a rainy day, they provided loans to sub-prime people or questionable business entities, they priced the credit too cheaply, education and knowledge of simple banking was overlooked, while internal controls on risk were lax and negligent.

The markets were caught up in the frenzy of what was thought to be non-stop economic growth. Shareholders demanded higher returns and entry into risky environments (e.g. buy-to-let in the UK or sub-prime lending in the US), while speculative products that provided no true economic benefit became the rage. Rating agencies didn't understand what they were rating, whilst accountants and lawyers just crossed the t's and dotted the i's. Companies (large and small) undertook risky or debt fuelled acquisitions, and were subsequently rewarded by inflated share prices. Companies that failed to spend their money or take on debt were viewed as short-termist and weak.

Yet the present global economic environment goes far beyond the banks and financial services sector.

Politicians and civil servants over the last twenty years played a part in relaxing, fudging or misunderstanding regulation, subsequently a blur developed between business and government (e.g. Government Sachs). Governments across the globe also saw no reason to reign in the banks when their coffers were overflowing with tax revenues. Politicians eager to get votes, boost economic activity, lower unemployment and increase homeownership encouraged people to obtain credit, while at the same time taking down barriers that previously restricted it (e.g. Clinton & Bush).

The media also went with the trend; failing to unanimously speak out about the splurge on credit, or criticise debt-fuelled businesses. TV channels provided countless programmes on moving up the property ladder or buying holiday/retirement homes. Spain for instance was building at one moment in time more homes than Germany, the UK and France combined, and is presently stuck with 1.5mn+ homes that it may never be able to sell.

Many academics, commentators and economists too were slow to pick up on the signs of a bubble or provide any significant warning signs.

Finally - the remaining roles in this blockbuster go to the general public. Tens of millions around the world gorged on cheap credit to finance their new large house or provide a car for every member of the family. Graduates avoided the old destinations in industry for the high-flying world of finance. Many became dependent on their credit card or overdraft facility to keep up appearances with friends, family and neighbours. Others lacked any savings whatsoever for a rainy day, or failed to diversify their investments and savings and got greedy (e.g. the example of Iceland's Icesave in the UK and Netherlands).

Generally common sense went out the window across the globe and the blame lies with a lot of people from numerous walks of life.


Banks aren't lending too anyone for a couple of reasons:
- Credit criteria has gone to the opposite end of the spectrum; there is no reasonable balance of risk.
- Regulators are seeking ever higher capital requirements; something that should have been enforced well over ten years ago when the environment was more accommodating.
- Banks are being weighed down by politically driven activities; e.g. the fudged takeover of HBOS by Lloyds.
- The interbank market is fubar; there is no trust in lending between banks due to exposure, hence the recent concerns over France's large financial entities.
- Politicians around the world have failed to put to rest speculation and worries over markets; whether it is the Americans playing Russian roulette with default, or Germany and the EU failing to resolve the problem in Greece. Subsequently banks are bracing themselves for potentially gigantic eye-watering losses.