Coran and I watched a documentary this afternoon, that we recorded from BBC2 the day before, entitled Inside Job. I was glad that it was on, since when it was shown recently at the local cinema, courtesy of the town's Transition group, we did not have the opportunity to go. The documentary, which is narrated by Matt Damon and has won several awards, was and is basically an expose of what caused the banking crisis, and how it was in effect, an Inside Job.
The reasons the film makers came to this conclusion were really quite simple. Like the average man (or in this case, woman) in the street, I have limited knowledge of the financial industry and how it works, and despite the fact that I have watched several different programs on the crisis as part of the BBC's money season, this documentary taught me more about how and why things happened than any of the other programs put together.
From my understanding, the crisis began or at least the seeds began to be sown when the way in which the funds for mortgages and loans were arranged also changed. It used to be the case that when one wanted to borrow money in order to finance a large purchase (say for arguments sake a house), you would go your local bank, who would arrange the funds, subject to status. Since the bank were loaning you the funds, and since mortgages typically have a long lifespan of up to 25 years, they were naturally extremely cautious as to who they lent to. This changed when the banks started to sell their loans en masse to investment banks, who in effect sold them on again to a team of investors. The investors could insure themselves against losses in case the loans turned sour, which they often did, but the insurance companies did not have the funds to cover these losses either. Because the banks had covered their own losses already, they did not care who they lent to, allowing those on low incomes or with insecure jobs to borrow funds when they had little or no hope of being able to pay them back. The banks though actively wanted these people to borrow money, since the more risky the loan, the more money they earned. Despite the high risk involved, these CDO's as these bulk loans beame known, were given AAA ratings, indicating a lucrative investment with little or no risk.
This type of lending became known as subprime lending and infected the whole of the banking system by virtue of the fact that most banks are international operations, if not in terms of geographical location, certainly in terms of how their investments are spread around. Thus it was that when Lehman Brothers in New York failed, it had a knock on effect on other banks and indeed other businesses and individuals around the world, a fact which one of the American bankers who was interviewed on this documentary did not seem to realise.
The Americans dealt with the crisis in the same way that we have dealt with it here -the Government stepped in and bailed out the banks that had not already been taken over. These banks then are now in effect owned by the tax payer. When most businesses fail, the first in line is usually the tax man, but in this case it seemed to be the executives, for they received in many cases, pay offs of millions of dollars, to the intense fury of the American voting populace, and I hasten to add, the British too.
When the banking crisis though hit Iceland at the end of 2008, and the country was forced to go begging for loans in order to bail themselves out, how did the Icelandic population though react? In a a totally different way. Once the dust had settled following the collapse of Icesave, the British and Dutch governments demanded that ordinary Icelandic citizens pay compensation to those who had lost out. Instead of giving in, the Icelandic government asked the I Icelandic people if they felt that this was fair, and the people unresoundingly said no, they should not be held responsible for the mistakes that bankers had made - the bankers should clear up their own mess. So, a full inquiry was launched, and arrests were made, and as I write, various bankers are being tried and sentenced. The Icelandic people then set up a consultation group of 27 ordinary Iicelandic citizens from all walks of life to draft a new constitution that was written online for all Icelandic citizens to read, putting both Britain and America to shame. Sometimes I wish that I were Icelandic.
It seems to me that we can learn a lot from the way that the Icelanders have dealt with this crisis, and watching this program it also seems to me that the Americans have a lot to learn with regard to how their actions affect others. They can no longer continue with their insular existence, pretending that the rest of the world does not exist.
I am not of course condoning what happened, but it seems to me that the World Trade Centre and what happened on that fateful day was also a wake up call with the same message. It was called the World Trade Centre for a reason, the reason being that companies from all over the world had their headquarters and offices there, and that as such people from all over the world worked there. The terrorists who flew those planes felt that it was America's fault, yet it was not only Americans who lost their lives and it was not only American families who were devastated. In the same way, it was not only Americans who lost their jobs and their homes through this crisis, but citizens throughout the world. While it would be unfair to lay the blame for either crisis purely on the Americans, they have to accept their share of resonsbility for what happened, and with the banking crisis at least, I see little sign of that.
My hope for next year is that every person on the planet in some way experience compassion, compassion for their fellow man and for the planet on which we live. For each person that will be different, but it seems to me that this the only sure fire way to make sure that something like this does not happen again. It is the attitude that needs to change, and no amount of regulation or taxes on bonusses will do that, it has be brought home to them exactly how it feels to experience a personal crisis of this magnitude and compassion is the only way in which this can really be achieved.