consumers fell into the trap of expediency when banks installed ATMs on
high streets, in supermarkets, airports, bus and railway stations, in almost
every town and city across the world. Banks created Internet sites to wean
customers off personalized services, prompting them to consult accounts via a
faceless web of communication.
In the space of only ten years banking was transformed and human contact almost
ceased to exist. Old fashioned bank clerks who had once greeted customers with a
friendly smile, or a frown, had gone the way of the Dodo. ATMs had replaced
human tellers for withdrawals and cold computer screens replaced the helpful bank
employee.
Without banks nothing could function, every economic aspect of daily life, be it
individual, business or government, depended on them. The power of their
transnational mega structures exceeded that of most governments. Almost
overnight the familiar high street establishments became faceless giants, whose
tentacles reached into every nook and cranny of the world’s economic system.
Their powers were limitless as they financed trade and commerce, manufacturing
and transport, mineral extraction and oil production, property and construction,
governments and wars.
Finally, it was the unbridled ambition of top banking executives, men like Fred
the Shred, with their greed for wealth and power, that brought about the breakdown
C
of the system, dragging entire nations down in their wake. What had gone wrong?
Who was to blame? Had the lack of government supervision and regulation
transformed some of the world’s best known banking institutions into mindless
creatures?
They had willingly loaned money to countless naïve or inexperienced borrowers,
who, attracted by low interest rates and lax self-certification, had overextended
their modest resources. Almost every applicant, including those to whom home
ownership had been an inaccessible dream, suddenly found themselves eligible for
a mortgage loan. Modest families became owners of newly built homes complete
with granite top kitchens, filled with every kind of modern appliance, marble
bathrooms with pulsating showers, HD flat screen TVs and sparkling new SUVs
parked in the driveway announcing their proud owner’s prosperity.
By what miracle had this transformation been made possible? In simple terms
sub-prime mortgages were sold to investment banks, bundled and sliced-up into
negotiable securities, then sold to investors on international markets. Mortgages
held on homes in Fort Myers, Florida, were sold to hedge funds managed in New
York or London, on behalf of unsuspecting institutional investors in Frankfurt or
Tokyo.
The high street lending institution that traditionally held mortgages as guarantees
against non-payment loans had in a manner of speaking passed the buck. These
same institutions, though they continued to receive payments, which were
forwarded on, had relinquished all responsibility as a result of the transformation
and sale of mortgages in the form of negotiable securities.
Mortgage backed securities were bought and sold by the large investment banks:
Bear Stearns, Lehmann Brothers, Goldman Sachs and Morgan Stanley, generating
vast profits and rewards for their top executives in the form of staggeringly large
bonuses.
The catch came when naïve home owners fell into arrears and defaulted once
mortgage interest rates were switched from attractive introductory low interest rate
offers to real market rates.
To save the banking system from having to support what had become
unsustainable losses, the US government invented a programme that was known by
the acronym TARP, designed to buy up toxic mortgage backed securities, thus
avoiding a catastrophic collapse of the system. The threat however remained since
it was nigh impossible to determine the value of worthless mortgage and consumer
debt held by endangered banks and financial institutions, a problem that would
trouble the US economy for years to come.