The Bank of England has released its latest Financial Stability Report and guess what? It says there may be a ‘need for a fundamental rethink of how to safeguard against systemic risk’! How much did they pay some genius to work that one out I wonder?
Joking aside it does come up with some sobering thoughts and a major factor appears to be that when times were good the banks overexpanded but they didn’t have a solid enough foundation in place to prepare them for the bad times.
Of course the real shot in the foot was the way they were throwing credit at us and this seems to be borne out by the report. It says that in 2001 consumer lending and consumer deposits were comparable yet by the first half of 2008 lending outstripped deposits by an incredible £700billion! That’s one hell of an overdraft!
So, as a result of this unbelievable shortsightedness we have the person in the street struggling to pay back unsecured debts to banks that, not having the money to lend them in the first place, have tried to reclaim with bailouts from the Government (and therefore the taxpayer who is the very same person in the street!). Does this mean we are paying the debts back twice?
