大象传媒

Funny, I was thinking something similar this morning. I'm hopeless with money and finance. Always have been, but it occurred to me when hearing of the increasing financial problems in the markets, the US Sub Prime problem, further interest rate rises here etc. that someone must be to blame. Naively, I can't help but think "How can this happen?". It's 2007 - We've seen mistakes made in the past, we've seen what happens when boom turns to bust - Surely things can be learned? These days we have more computer processing power available to the banks and financial institutions than ever before, so that "what if?" models can be played out for years to come - We have so much knowledge, yet still we see this happening and it's affecting the lives of everyday people, not just traders etc. I never met anyone who worked in the financial industry who is poor. They're usually earning above average money and they're the least likely to be affected personally by this stuff yet it's their poor decisions which we all pay for. On one hand, I see that for a while now banks have been encouraged to lend responsibly, yet since January NatWest has been badgering me to take out a loan. First it was 拢7500, then when I didn't take them up on it, it went up to 拢10,000. Now it's 拢13,500. Is that responsible? of course not.

Apologies for this long winded post, but in the end I just feel that banks need to be regulated more strictly. I can't blame them for my retail therapy addiction - I use my credit cards, not them, but I do expect them to manage themselves correctly so that my mortgage doesn't seem to be increasing ever 4 months and I don't need them urging me to spend yet more money when I don't have it to pay back!

Are the banks to blame?

Yes, yes they are. Pretending to make "loans" using the forms the "borrowers" signed as the asset at no risk, but expecting their customers to actually repay using real money, time and energy is FRAUD.

Ok, so it's "legal" fraud. Well done, easily bought off government!

All banks are INSOLVENT, but rather than face up to this reality they are playing hide and seek with what small percentage of "money" (actually fiat currency) they actually have left and are using the decency and fear of normal people to keep the whole house of cards upright.

It's completely evil and utterly immoral and you can't even defend it by saying it works all that well.

The "blame game" is pointless - it is learning the lessons which is important. Markets are cyclic and we are at the inevitable end of an unprecedented, long period of growth. All the froth generated is boiling off now and that means we are in for an extended period of turbulence - even a slump. It is easy to be wise after the event, but people will always strive to maximise their gains during the good times which invariably leads ultimately to the sound of popping bubbles.

Hello Evan: it is all fair and good blaming the banks for this recent fiasco. But the public are not exactly squeaky clean are they? What about those in the US who took loans even though they didn't have a chance in hell of paying them? Here in the UK it doesn't get that much better. How many people have LIED in their mortagage application to get a higher ammount? (good'ol "self cert"). Then there is the large sector of the population who live well beyond their means. Yes, the banks are guilty, but they have willing accomplices in vast sections of the population. The sad thing is that if things go really pear shaped, then even those individuals who have acted responsibly will suffer.

Evan you're absolutely right when you say there is a 'blame game' being played, but really the banks are too strong to suffer and it will inevitably backfire on us!!! The regulator should keep a closer eye on them...after all that's what they're there for!

Evan,

An excellent article, you are fighting with harder gloves now, as I have previously suggested that good journalists should.

The banks have behaved with complete
irresponsibility in persuit of short term profits but the UK government have permitted this excessive borrowing, which has fuelled the 'feel good factor' with the government for the past 5 years.

The intervention of the CEB and BoE with taxpayers money is bad, we pay our politicians to prevent problems not cause them in promoting their own survival and then give away taxpayers money as an apparent but very inadequate solution to a future massive problem for the global economy.

So while I was wondering how the banks were able to find and lend *so* much money, it seems they were 'borrowing it'?!

I know intelligent people who were of the opinion, based on all the evidence, that the housing market had reached a natural peak several years ago. It seems they were confounded by suspect banking practices.

The banks had to make big profits to keep the shareholders happy so are they alone to 'blame' if they did bend the rules...

If it does all backfire on the rest of us, a cool period of low growth and less greed could be quite refreshing after the heat of the last decade.

The thing that surprises me is that anyone is surprised by all of this - and how some people think that it is all somehow "just happened". Central banks were desperately trying to stave off a world recession post 2001 and flooded the world with cheap credit - Keyensian economics via cheap debt, if you like. The central bankers will have known all to well that retail and investment banks would have found this to be too much of an irresistable bait. How else could things end, other that how they have? Everyone thought that the crunch was tomorrows problem - well tomorrow is here.

Evan, you are right to attribute blame to both corporate and central bankers. Corporate bankers have been here before with excessive exposure to commercial property developments (about to be repeated?) and the South American soveriegn debt crisis.

However, I wonder if governments are not also to blame. In many countries government has charged the central bank with managing inflation but only provided it with the very limited tool of setting interest rates. In part, this has caused the domestic consumer based economic success whilst wider international trade development has been ignored.

Now the result is that central banks have to decide between interest rate management to control inflation or supporting an over-stretched banking system.

The Federal Reserve is a private bank and they are leading the chaos. Please note that the Federal is not Federal but is in fact a private bank.

Nobody is to blame!

The Banks have only provided the means for people to buy what they don't really need to make themselves happy. Is this morally wrong?

Its called the economics of lifestyle where corporations exploit the vanity of the self. These principles evolved from the works of Sigmund Freud and and later by his nephew Edward Bernaise during the twentieth century.

Governments have allowed it to happen because it keeps the people docile and controllable, once hooked they seek more and more of what makes them happy. Money to buy things!

The intoxicating nature of this effect is simply running out of steam. Withdrawal beckons and there are few of us that know the way out of what might turn into a poverty of rehabilitation.

Businesses: Too much red tape is harming the economy.
Government: Reduces regulation.

Later, after a crisis like this current subprime mess.
Public and media: Lack of regulation is harming the economy.
Government: Increases regulation.

Much later after the painful memories fade, repeat again with business demanding deregulation.

Note: Remember to fix blame throughout this regulation/deregualtion cycle.

The coming crash is inevitable. The nature of the beast. If you want to blame someone you'll have to start with the goldsmiths who invented fractional reserve banking.

IS it the banks though? THis is the big question. Technically we were supossed to have a downturn a number of years ago, instead as you pointed out they stimulated the economys that resulted in a credit boom(uncontrolled in most). Upon whose authority did this occur?
Its all a bit suspect in my eyes, most of the data that was acted upon and final say is probably governmental across the major economies. And most of these economies are financing wars in different parts of the world. Now you don't want your people feeling poor and the moral dipping when your about to start a war do you! You need a population of people feeling in the most part rich and distracted by how good life is!
Smells a bit fishy to me.

I would lean towards blaming the bankers for failing to adequately assess where their activities fell on the risk/reward graph.

You could argue that the ratings agencies also bear some of the blame for rating some tranches of mortgage debt rather too generously, but in the end the banks are responsible for making their own evaluations.

The problem we face now is not the existence of these high risk investments, it's that nobody seems to know who's been gambling with investors money or how big their losses will be.

Hopefully the half-year results will prove enlightening, though given the banking industrys talent for obfuscation and prevarication at times like this I wouldn't bet on it.

Keith.

Another great post Evan. Shame you don't speak so freely and honestly on the telly. You are completely right - banks (private and central) are the real culprits but sadly they can't be allowed to pay for the consequences of their follies .... So, guess who will be the ultimate fall guys? Bring back credit controls I say, but that would be bad for growth ....

This is one of those "does a bear poop in the woods" type things.

Yes of course it is the banks.. But whilst they were playing their games and making huge profits they were letting down the rest of the economy.

As one of my friends said about RBS - arguably the most arrogant bank on the planet - they'll happily sponsor sports such as Formula One to the tune of a rumoured 拢50m but if you went to them with the best business plan in the world to start a car manufacturing company they'd laugh you out of the door.

What they need is a) new management and b)a Govt that will make them behave. Bank shareholders had better start understanding this and fast.

It is never to soon to play the blame game !!

Another great article, Mr Davis. Taking each of your points in turn..

"they lent money stupidly.." Yup, I agree. I used to work for a 'Big 4' bank, and the 'headless chickens' which resulted when the 大象传媒 ran a 'Real Story' documentary into irresponsible lending had to be seen to be believed. Lending targets [and the rewards tied to them] had increased exponentially on the old 'if we don't lend to them, somebody else will'. Although I don't think this was ever as much of a problem for mortgage lending - certainly the loan portfolio increased, but lending criteria were far more stringent than what has been seen in the States. And affordability was considered in a way which had become incredibly lax for unsecured borrowing, which was all done by 'credit scoring'...
[Although, of course, much mortgage lending is done outside the 'Big 4' banks and large building societies]

"they made enormous profits in recent years...that they were lending money out on a long term basis, but depended on borrowing it week by week" - Evan, I have to disagree with you on this point. Two of the main functions of a bank are 'Risk Transformation' [where your deposits are lent out to people with a variety of risk profiles] and 'Maturity Transformation' where your deposits are lent out to people who will not repay for years.

This would be a problem for an individual if there were no banks, but if this challenge didn't exist there wouldn't be a reason for the banks to exist, so it seems rather trite to describe this as a problem.

It is like saying that it is a problem that people default on their debts - well, if they didn't, people could just lend to each other. It is only a problem when banks don't control that 'risk' and 'maturity' mis-match, which is, after all, why they are in business and make those large profits.

"and it was the banks who created sophisticated financial instruments.." Agreed that this was always going to be an accident waiting to happen - but the ratings agencies have been handily complicit in this. Although CDO/CLO contracts have parallels in the music industry where artists get a huge bag of cash now, by selling off their stream of future royalty payments. This sort of deal isn't going to disappear unless human nature changes to the extent where people no longer prefer a 'bird in the hand to two in the bush'.

You make some very valid points about regulation and financial services regulation, but given that Sarbanes Oxley hasn't [as far as I'm aware] been completely implemented in the USA clearly doesn't cover Europe, well...

As for the Bank of England's decision in August 2005 being its 'worst' - hmm.. do you not think that maybe rates were kept too low, for too long after September 11th 2001 ??

One for your next post, maybe..

I always find that an Austrian analysis of these bubbles and their bursts brings us to the soundest conclusions. Manipulation of credit markets by central bankers has caused a wasteful flurry of malinvestments, which, as we now see, are being liquidated. The banks merely acted rationally as their investment compass was distorted by an extra-market force. Unfortunately the central bankers have now decided to prolong the necessary liquidation of these malinvestments by manipulating the credit markets even further. This thing ain't over yet.

The banks got to greedy, knowing (and they still do) that they will recover their loss while house prices continue to rise. They will just sell a house for which they over reached the buyer with stupid repayment terms that they could not meet should interest rates rise. If there is a crash in house prices, then things will get a lot lot worse!
Shame the home owners will suffer.

It ain't over, more banks will spill he beans as too how much they are exposed....

they lent money stupidly; and devised clever ways of lending more than their regulators allowed by getting other organisations to lend on their behalf.

>> the banks new what they were doing, they new what to do when it would all go pop.... Who regulates... NO ONE

鈥� they made enormous profits in recent years, but failed to anticipate the most obvious problem in their business model - that they were lending money out on a long term basis, but depended on borrowing it week by week.

>> Again, the banks new what they were doing, they new what to do when it would all go pop.... They have a good business model, even now, they will not loose until house prices fall.... and they need to bail..

鈥� and it was the banks who created sophisticated financial instruments that obscured the risks that they were taking.

>> the banks new what they were doing, they new what to do when it would all go pop.... NO RISK, SELL the house they reposes and move on...

Superb rationale!

How about the irresponsible borrowers, don't they share some of the blame for borrowing recklessly? It's easy to blame anonymous corporations, they are an easy and convenient target. It seems that no-one wants to take personal responsibility - it's always someone else's fault when things go wrong.

bunch of bankers!

An excellent and clearly writen article. Thank you Evan.

Somebody should take them to the Ombudsman for wrecking our economy and futures.

Trish Niblock Edinburgh

until the loses are known how can we tell the depth of the problem? All of this years growth is wiped out and only at current levels because of massive support. Gold over $700 now and traders say if it gors to $800 by the end of the year then that would signal a world depression.
Until the markets knows where the bottom really is [and so true value] they are stuck.

p.s. how come the economic reports are not on newsnight? instead of serious reports this friday we got 17 mins of yaparrazzi gossip -which is fine if the target audience of the main news platform is now clothes shop assistants? We have had executive sackings, traders disappear, funds closed and all we get is portugal. Maybe the yaparrazzi prefer the weather there.

Yep- they have a lot to answer for. You can now borrow double what you could ten years ago when incomes have only increased 30%. Property was n't cheap 10 years ago so how on earth do we keep up with payments if rates go up further? We have had to increase borrowing in order to compete with others on offers on property- banks increased the lending so we used it- like some perverse arms race AND banks have profited. No doubt they will say- we took out the loans so we are responsible- that is only half the story- we are back in the era of "handing the keys back".

Banks are to blame for lending money so easily often not caring about the ability of the borrower to repay the money.

We have now lived in a low interest rate period since the mid 90's. Rates have during that period been lowered to ease market tensions after 9/11, when perhaps then they should have been on the way up.
The Central Banks have never thought to the longer term, only the near future.
This "cheap money", has had many affects in the UK.
1)Rising property prices fueled by speculators, buy to let land lords, self employed "proerty developers" etc.
2)Loan companies advertising on every television commercial break, sometimes using "trusted TV personalities", to offer their products.
3)Credit Cards offering 0% "suck in" deals.

They now have a choice, to take the nasty medicine, suffer 5 to years of economic hardship, or to adhere another "Band Aid", giving the economy another year or two grace, and then await the next inevitable financial hurricane.

Don't forget all those greedy people who demanded such cheap credit to buy stuff they didn't need and couldn't afford, and also those who insisted that everyone HAD to get on the propery ladder WHATEVER the cost, causing overinflated house prices to go through the roof, thus making demands for loans of the value and type banks should never have lent out on.

Somewhere in all this, the consumer is also to blame. We could have stood or ground earlier, but oh no. No one wanted to listen...this was a new golden age. Now this new golden age has gone rusty and everyone can see that it was the same old iron made up to look like Gold!

The banks are largely to blame for the financial crisis developing in America.However the customer must accept some blame.From my experience in the mortgage business there were always those applicants who were not acceptable risks but went elsewhere,got what they wanted,and told me in no uncertain terms where to put my money.
Having said this I beleive money lent in America was based too much on future property values rather than applicants ability to repay the debt.

Really people... Can't you see it?

The blame is with the monetary system itself. It requires booms and crashes. Look at the equations.

Debt pays interest at 5.75%+ every year.
Deposits pay interest at some lower rate, say 5%.

By definition the debt therefore has to suck cash out of the economy. Credit squeezes are absolutely inevitable.

In order to avoid that circumstance, to delay the inevitable, you have to take out more (bigger) loans in order to pay the current debts and interest. Thereby increasing cash in the economy. Repeat until you're loaning money to people who can't really afford to pay the interest.

Of course, more money in the economy means more inflation which means higher interest rates which triggers loan defaults and repossessions.

By boosting cash (& debt) in the economy, the central banks simply delay the inevitable and make the crash that bit bigger in a few years as the sub prime or self certified people get sucked in.

It's all inevitable. To prevent it we'd have to change to another monetary system.

Another good article Evan, yes banks are to blame but not the only ones. Look no further than interest only loans, at one time you could only obtain them if they were linked to an endowment policy as a means of paying off the capital at the end of the period. Now banks lend to people with no means of repayment who just want to keep monthly costs low now and will worry about paying off the capital in the future. Lets not forget Gordon Brown who sang the paises of the financial institutions and told us how good they were for the economy. Surely by his inactivity, as Chancelor, he endorsed all the practices that are now being blamed for the current financial crises.

I blame the human brain - economic cycles are about 18 years for good reason - people forget what happened last time.
What where you doing 18 years ago, Evan? Smoking pot in some university bar no doubt! Bet you can't remember it though!
It goes something like this.
1. Put interest rates down.
2. Everyone borrows money and spends it on rubbish (Mal-investment).
3. It looks like a boom!! Put interest rates up.
4. The rubbish isn't very productive and the borrowers don't want to / can't pay back the money.
5. Everything falls apart. Doh! Goto step 1.
(Elapsed time 18 years)

1) Profits made by banks have generated HUGE contributions to UK tax incomes over the last decade.
2) Not all banks have followed the flawed business model of borrowing short and lending long.
3) Now that the banks are scared to lend to each other, the Bank of England has allowed the Banks to place larger deposits with the BofE and the BofE then lends to the Banks at up to 1% over Base Rate - BofE and the UK tax population make a nice little earner.

Everyone hates banks, so blaiming them for recent market turbulence is an easy option. But no one forces us to borrow. We do so to secure a better living today on the assumption that we will be better able to pay the cost tomorrow. Rising asset prices have convinced many of us that this is an effectively risk-free option. Similarly, rising asset prices make lending appear a lower risk activity.

All this is fine provided asset prices continue to rise. But as we saw in the late 1990's (remember the "new paradigm"), judging whether such rises are a result of changes in economic fundamentals or merely a bubble is difficult.

So let us avoid blame. If banks misjudged the risk in lending they will suffer. The important thing is to ensure that the impact on the wider economy is minimised. So far (and despite the warnings of doom-mongers), in the UK it seems to have been.

Hmm, I think what we have here is a classic situation of EVERYBODY being a little bit to blame for this mess!

Customers - don't borrow money you can't afford! Stop blaming banks and take personal responsiblity for sorting your finances out.

Banks - why not focus a bit more on the long-term instead of getting too many customers overwhelmed with debt in the short term? You never know you may actually make more money...

We are ALL to blame, therefore the solution lies with ALL of us.

Banks are to blame also the government is also to blame, i always thought the government should try to reduce it's spending, when the economy is doing well. The government should be paying back its borrowing after it helps with the 1st push to get the economy going, taxes have been going thru the roof so has government spending, so there still remains a problem with the foundation of this miracle economy, and looking into it does not seem the be the miracle economy Gordon has be telling us, but one of debt to create the illusion of a booming economy if the government has to spend as much as it does. House prices are a major factor in this equation higher prices doesnt help our economy to be competitive.

your argument is flawed at the outset by assuming the banks failed to anticipate the outcome. They knew very well that it would all end in tears. But not their's. They would long since have trousered their bonuses and moved on

The Banks are in a no-win situation.

If they lend money at virtually no margin (eg to private equity, retail mortgate) they are accused of reckless lending.

If they lend at large margins they are accused of being greedy

If they lend to the sub-prime market they are accused of reckless lending.
If they don't lend to the sub-prime market they are accused of unfairly excluding disadvantaged people from the financial sector.

If they make large profits they are accused of being greedy.
If they (as now) look like they may make substantial losses, they are accused of being reckless (and greedy!).

If borrowers lie on their application form for a mortgage, some like Sephus Jay accuse the banks of fraud!

I'm no huge fan of banks, but they do exactly what any other business do, they try to make money in a highly competitive environment. Nothing wrong with that.

Sorry Evan - your analysis is very superficial.

1. Why is it flawed to borrow short and lend long? This is exactly what banks and building societies have been doing for hundreds of years. The old fashioned building society movement (much missed) was built on exactly this model, and (to my knowlege) in the UK there was never a major building society failure due to borrowing short and lending long.

2. Again - what is the flaw with securitisation (per se)? No one has raised any serious criticisms of the straightforward securitisation issues, or indeed of corporate paper.

3. The issues are with the more complex structures, such as CDOs, where the buyers of the security being sold were not properly aware of the risks associated with it. This could be because the risks were not properly in the relevant offering documents, because the rating agencies did not understand the risks (and therefore over-rated the securities), or because the buyers were not sophisticated enough to understand what they were buying in to.

4. If anything, this has echos of Barings - where the senior management in a business could not understand the complexities and risks being assumed by the astrophysicists trading on the dealing floor.

And where should we point the blame finger - it should be pointed back at us, because we demand unsustainable investment returns, which fuels financial institutions to invent complex instruments to feed this market.

Whilst Barclays may lose some money because of their exposure to some of the more fanciful structures, they are big (and bad) enough to survive the loss. It seems very unlikely that any significant financial institution would become insolvent as a result of this "crisis". There seems to be no overwhelming reason for central banks to intervene beyond the Bank of England's current policies to ensure liquidity.

"So what" if some investors lose money? If you play with fire, don't be surprised if your fingers get burnt.

A large portion of the population is to blame.

The Bank of England for caving in to pressure from "Business" which isn't in fact manufacturing but paper shufflers in the square mile wanting to borrow more money. Like it or not but the U.K. & U.S. stand out as countries happy to outsource everything and not realise the consequences, whilst other countries in Europe strengthened their position to produce in-country. The BofE should be using our trade defecit to manage the wealth of the nation not the imaginary worth of peoples houses.

The General public for living beyond it's means and not being honest to admit that the loan and mortgage is too much to pay each month. Also for demanding jobs that pay too much for doing too little.

Investment Banks for creating new products that very few of them understood and hid the debt to the point where no-one now knows where it is.

High Street banks for inadequate checks on peoples income. The average house now stands at close to 拢200k, how many people do you know earning 拢67k a year combined? I'll wager it is a small percentage of the UK population.

Risk Agencies for rating products from investment banks that they did not understand but rated them so high as to make investment into them unavoidalbe.

Labour as a Government. For using inflation as a target, using CPI not RPI to monitor prices and not encouraging savings within the population as a whole. Brown's miracle as a chancellor has saddled us with over-priced PFI's which went further than the Tories ever allowed for; which will ultimately increase council tax's locally. He has also allowed himself into being bullied into firther financial dergulation which has caused the massive national debt which will ultimately kill the economy.

The media, for house porn. Channel 4's Location, Location, Location stands as the worst culprit for stating that houses only ever increase in value, which I am sure is based on good evidence.

A good piece of writing Evan, but I fear too little too late. Even the today program this morning had someone trotting out the usual lie about a lack of supply in the housing market keeping prices high forever.

Lending rather than investing is probably the real problem. As the boss of the CBI said recently if the UK wants to stay competitive then it has to have a bunch of global companies but the numbers we've created in the past 25 years is too low.. I paraphrase but you get the picture.

What has happened is that short term gains were seen as more attractive. So lending a bunch of cash to some PE company that promises faithfully to give it all back with profits by the end of next week is more attractive to Johnny (or Jenny)Banker than coughing up some equity for an engineer that's invented something really useful with a global market.

Banks - and others - should of course be doing both.. One look at the trade gap figures which are as bad if not worse than the sub prime and other potential losses will tell you that not creating those new global companies has created another form of debt.

So far most of the talk has been about those who have either been induced or cajoled into borrowing more than they can afford to repay.

There's another potential victim in all of this. I, like I'm sure many others, have always applied common sense to my life style and finances, never borrowing unless I absolutely had to. The result is that I've been able to keep tucking away savings throughout my working life, and now that I'm retired, I can supplement my pension with the monthly interest I get from my various bank and building society savings accounts.

What happens to the likes of me if this crisis actually takes some of the banks down altogether. I and my like stand to lose our life savings overnight because of others' folly, greed and mismanagement.

Perhaps Evan ought to have a read here, seems he was a bit slow in commenting on how the central banks are to blame.

I'm reminded of the line in It's A Wonderful Life where, faced with a liquidity crisis, Jimmy Stewart says: "But your money's not here, in the bank. It's invested in Joe's house."

And in the movie, of course, this was Good News.

But think about Joe for a moment - if the customers believed what Jimmy said, then Joe would keep his loan and house, and everyone would keep their jobs. If they didn't believe it and insisted on their money back in the short term, he and they wouldn't .

Whether the fact that the money is not immediately available to be repaid can be Good or Bad news, depending on whether you take a short term or a long term view....

The banks are to be blamed for the house price inflation and asset bubble as the cheap credit money is readily available in the market. The house price increase in the UK is defiant against all odds and they are accelerating. Whom to blame?

I'm afraid I will have to rain your parade. I think you take aim at some of the less culpable parties for the problems.

1) This is at its root a problem with mortgage origination practices in the United States, where mortgage regulation is mainly done at state-level. And I think it is very important to distinguish between US mortgages, which are seeing the most profound escalation in defaults, and European mortgages, which are still within the bands of expected performance.

2) You say banks have "lent money stupidly". I think it is much more a case that investors invested stupidly; especially when, as you say, the original loans were made by non-banks. Where the banks and other institutions held the mortgage-backed products in their SIVs, they were acting as irresponsible investors. The originators of the mortgages - often non-banks such as Countrywide, AHL - had little incentive (in the short-term) to evaluate credit risk, and this is one of the key reasons for the current mess (I'm an economist too, I look for perverse incentives when the fit hits the shan).

3) I think you would do well to remember that the UK introduced very detailed regulation in 2004 around selling mortgages. If the UK avoids the worst fall-out from the so-called subprime mess, I think regulators here perhaps deserve a pat on the back (even though the FSA did not fancy regulating mortgages when the idea was first floated).

4) Not quite sure what the BoE has done wrong. Rates were held low for a while - but not as low as was the case with the FED or the ECB, and whilst you can argue about the pace at which they tightened, the BoE is ultimately not responsible for reckless lending/risky exposure. As you should know, that's now in the FSA's domain.

So, my prime culprits are as follows:

- US regulators
- Fixed income investors (and thus banks when acting in this capacity)
- Central Bankers and Regulators, who have generally taken too long to recognise and understand the paradigm shift in the mortgage market.
- Mortgage originators and Securitisation businesses for being greedy and myopic. (So basically behaving exactly as you would expect)

The first are rudderless, the next have been naive and negligent. Banks may have securitised some rubbish and Ratings Agencies may have signed off on the product, but if caveat emptor must ever apply, surely so in the institutional fixed income markets.

There will be systemic effects from the current problems, and let's hope - against hope - that for once we learn the correct lessons.

Hi Evan, great post, and here is a small list of a few more culprits, I believe, as yet unmentioned:

1/ investors - particular ire should be aimed at incompetent pension trustees who did not (still don't!) understand the risk they were taking with the money entrusted to them, and got caught up like sheep in the "you don't get fired for buying IBM" mentality as everyone else piled into CDOs - lawsuits please?

2/ politicians - for pretending that Western economic growth was based on anything other than cheap credit and house price inflation.

3/ the voting public - for being too ignorant/apathetic to call their leaders to account on the issue.

Remember Enron!!!

Nobody attempted to apportion blame there as long as the business seemed to be making immense profits - despite the fact that hundreds of their employees must have had some idea that things weren't quite right...

Personally, I don't see much difference between a banker and a bookie these days...and ultimately, the house always wins - and the punter always loses!

We all know that banks will always be banks.

But I think that most of the blame lies with ourselves. The addiction to ever rising property prices has been fuelled by personal greed.

We were all watching those "Hot Property TV Programmes", dreaming on how we could make money out of our homes. This increased fear for those not on the property ladder. Along with the easy credit gave rise to the recent boom.

But be honest did any of us really expect this end happily . . .

I think you have grossly oversimplified the situation if you are referring to the US which is where the sub prime lending crisis arose. There are different kinds of lending institutions which grant mortgages and they are governed by entirely different types of regulations. There are also many different kinds of banks, Commercial banks, Savings Banks, Investment banks, Credit Unions, all governed by different regulations. Technically, some banks are insured for their depositors by FDIC while others are insured By SBLIC. This protects depositors accounts up to $100,000 per bank from being lost in case the bank goes broke. This is to avoid the kind of run on banks we saw in the early stages of the depression. In return, banks have very strict regulations which govern what types of credit risks they can assume. To those whose credit worthiness is not acceptable to the banks, there are other lending institutions. These are the lenders who offered mortgages at teaser rates, low at the beginning and then after a year or two much higher. Don't blame them, if they want to throw their money away, they are entitled to. Blame the institutions who bought those mortgages without knowing what they were getting themselves into, the highly paid financial hot shots who were going to make a killing. They thought they were so smart. These sub prime mortgages were packaged, sold, repackaged, and resold again and again until their absurd risks were spread all over the financial world. The one place they did not go to was those banks whose investments and loans were strictly controlled by the government so that they could be insured. So blame the guy who is the money manager of your pension fund, your mutual funds, your investment advisor, not the original lenders or the banks. And blame yourself if you don't know what kind of investments you have. There are only two emotions in the investment world, greed and fear and if you are to busy or disinterested to become savvy to what you own, don't blame the consequences of your ignorance on anyone but yourself. A fool and his money are soon parted.

Oh come on. What鈥檚 next, maybe people can start suing their banks for lending them money because consumers are too thick to know when to stop irresponsible spending. It鈥檚 consumers that cause bubbles, banks simply provide the service consumers wanted in the first place. If banks didn鈥檛 lend, then they would be evil snobs that only lend to rich people and if banks do lend, they鈥檙e out to get poor people.

鈥淎n excellent article, you are fighting with harder gloves now, as I have previously suggested a good journalist should.鈥濃�� yeah whatever. Journalism should be about the truth, even if I don鈥檛 want to acknowledge it. Please don鈥檛 start with 鈥渋t鈥檚 not your fault, they鈥檙e out to get you鈥�. That鈥檚 what triggered this, people in the US obsessed with home ownership and borrowing beyond their means to finance their purchases. Now the banks are left to pick up the pieces.

Honestly, retail banks are sleepy places and contrary to belief, all their employees aren鈥檛 all out popping champers every night. Maybe your pension fund manager is but that鈥檚 because she/he consistently outperforms the objectives they were set. You could pay some school leaver 拢10k to manage your pension fund but I prefer to have the most competent person to look after mine. STOP SLAGGING OFF THE CITY!!

There is also a little matter of 拢1.3T of debt which will be haunting us for a few years yet.

Although I dislike the blame culture, I wonder if some of the "blame" could lie a step further back. I feel that the range of the Government's inflation target could be bit on the tight side, and have often wondered whether we would be in this position if the inflation target had been 0-3%, rather than 1-3%.

To all those who say "no one forces borrowing", I have to sadly inform you that you are completely wrong.

Because the bank only "create" the amount loaned and not the amount loaned + the interest that they want, either -

The "borrower" must default

OR -

Somebody somewhere must "borrow" the interest that is owing.

This is why inflation is a constant with debt based money.

Not that it matters, 95% of all bank business never happened, cannot be proven and is based upon fraud.

National debt of 1 trillion? Have you any idea how much space that would take up? Where is it? Why am I not wading to the shops knee deep in fivers?

Oh..it was all lies...nevermind....

With all due respect, you are hardly getting the ball rolling Evan...this issue has been being discussed for weeks, including by your colleague Robert Peston. Where have you been?

Of course the banks are partly responsible for the present crisis, but there will be no shortage of people to blame them. What the politicians and media pundits are less likely to admit though is that ordinary borrowers and investors have been greedy and ignorant, and unless they are made to bear their losses, the problem will likely recur within a few years. Many borrowed more money than they could afford because they naively extrapolated low interest rates and rising house prices. Just watch the housing programmes on TV; they treat risk like a bungee jump 鈥� something more scary than dangerous, that will probably prove to be fulfilling if you have the bottle for it. The risk of such dodgy lending got bundled up and sold, often via fund management agents, to investors like pension funds who were trying to cope with low returns without putting in more money, and were too lazy to properly investigate the assets they were buying.

It is imperative that there is no bailout for borrowers and investors for two reasons. One, the cost of any bailout will fall on those that did not make the same mistakes, imposing a penalty for prudence. And two, it is impossible to legislate and regulate against unknown future temptations, so the most reliable defence is a questioning and cautious approach to finance.

Blaming the banks is like blaming Harrods for selling you something you could have got cheaper at Tesco.

In the UK you could certainly blame this government too. They've increased national debt by 150bn since 1997, taken on massive PFI liabilities, employed a million more loyal voters and paid them inflation-busting salaries.

All this unearned and borrowed money employing a million well-paid civil servants we used to manage perfectly well was bound to make its way into jacking up house prices. Not only that but the relative prosperity of this million that we used to get away with paying the dole has increased the demand for borrowing from everybody else too.

And as the good times rolled and these house-price increases became ever more 'normal' more and more folk were encouraged to 'release the equity' tied up in their home and treat themselves to the BMW X5 and holiday in Dubai that their astounding investment nous had landed in their lap.

It's been apparent for years that all this wealth and consumption has been on the back of the UK government priming the pump to the tune of at least 30bn a year of borrowed money/PFI. And you want to blame the banks?

Blame the government, that in a period of global prosperity squandered materially more than it was receiving in taxes and over-heated the housing market. And then just pretended that would have no effect on consumption or borrowing or inflation.

Sub-prime lending? Sub-prime government more like.

i agree

A sound arguement, Evan.

Perosnally, I've been expecting this for some time.
In 2005, the Economist reported that house prices rose by 150% between 1998 & 2004, whilst average earning rose by 50% in the same period. It doesn't take an economist to spot a bubble!

A subsequent report in 2006 that UK banks were lending money beyond the the amount they held on deposit, and borrowing in the commercial capital markets (the sort of financial shennanigans that brought us the 1929 Crash).

The banks knew they had created bubble and had to keep inflating it with more and more lending, even when they had to borrow beyond their means to sustain the bubble. And now they will try to blame their customers for exactly the same behaviour.

Sheesh! Now's clearly a good time to invest in the sackcloth and ashes sector ...

How about we don't all run in circles wailing that the sky's falling on our heads, and instead consider rationally how one (one!) UK lender took a strategic risk in pursuit of transformative organic growth?

Who wants to rule all such risk-taking out of bounds? One central reason credit markets are so keen to ram credit down consumers' throats is that there are no more reliable value-returning sectors for cash-holders to park their capital in.

If the productive economy is that difficult to make a decent return in, the cure is likely to demand more risk-taking, not less.

UK Subprime? What UK subprime?

This storm has been brewing for a long time now...

It's time for a bit more investigation into UK Subprime. If it was around in 2003 you can guarantee it ain't got any better

Why is it so dofficult to say who is to blame?

The boss takes the rap for an underperforming business and the people who have presided as bosses over this mess up are New Labour.

They can run but they can't hide form the shambolic amount of credit that has been pumped into the sytem. But monetising capital is a dangerous game. Eventually there is no one left to buy. We are in that situation right now.

What is interesting about the coming crisis (and it has only just begun) is that Gordon Brown for all his intellect has shown a remarkable anivety about the workings of the financial system on one hand and human psyche on the other. Given the choice between training to become something and buying a house and doing it up for a few quid the average punter wil choose the latter, get rich quick, option. As many did. But they need somebody in a real job to sell to.

This party is well and truly over. Stories about the fundamental strength of the economy form the chancellor are forgetting the fundamental indebtedness of both private and government sectors. Debt has to be paid back... you can't spend more than you earn indefinitely...listen to the great Thatcher, it was her mantra. If Gordon really wants to be a convicition politician he shoud start to tackle this mountain of debt; and with conviction. The tide is going out rapidly and will leave manty stranded at this rate; including a new Prime Minisster who is to be balmed for these conditions in the first place.

Vote Evan for chancellor!!!

Why is no-one mentioning Gordon Brown when it comes to blame?

Banks are commercial organizations that hunt profit, consumers will grab any credit they can get, but when there is a systemic problem we should look at the regulator, the politicians and the laws. Gordo has presided over an unbelievable boom in credit, and done everything possible to take the voter's eye off the ball. Labour knew there was a huge crunch coming and did nothing about it. Why was house-price inflation deliberately removed from the Treasury's forecasts? Why was nothing serious done when growth was clearly not going to reach the level Gordo thought? Why has the tax regime expanded in scope and complexity for small business and the middle-class while the non-domiciled rich pay nothing and the Inland Revenue has given up on the tax avoidance of big UK firms, eg Labour's pals at KPMG?

It's all very easy to blame, shame & name. It's hardly surprising that before the matter is even resolved, media & public are doing just that. Meantime, greater minds ignore the speculation & get on with resolving the real problem in the best manner they can.
So the Chancellor of the Exchequer re-makes major monetary policy on the hoof, upping investor protection from 90% of up to 拢30,000 invested, to 100% unlimited. Maybe a review was overdue in any case. But what will be the effect? It could be 2 ways, attracting even more money to Britain, but at the same time encouraging banks to take even crazier risks. But UK PLC has its financial limitations & like Northern Rock could become subject to future takeover when it too has a run on its reserves. Last time this happened we (thankfully with hindsight) dropped out of the ERM. Would Europe bail us out in future? It didn't then. Although we've been their paymasters, I think their support will still be unwilling, at least until we are as poor as most of Eastern Europe was.
So whilst the blamemeisters speculate about what went wrong, they avoid thinking about the solution & its potential consequences, until that also goes awry.
Hey guys! Please will somebody get up the front of the cart with the driver & have a look?

It is of course no surprise that the concept of lending long by borrowing short may lead to problems, what is unacceptable to any business/sole trader etc is the Government stepping to provide a blanket guarantee,can I now receive the same when my business hits a problem I created ?, this is a complete mis-use of taxpayers money and a really dangerous precedent.
It demonstrates very clearly that we are governed by fools who have absolutely no notion of the real world, they actually beleive that they can step in and apply a plaster to the wound without cleaning it out first or letting the patient take their own remedy. I really beleive that we have just witnessed this Governments " Black Wednesday", frankly not before time and the loss of yet more cherished freedoms...

its fundamentally mental to be in rental
when you must try to buy
lest prices accelerate sky high
or higher still

i've read it
that credit
is easily available
the banks are bailable
the economy uncurtailable

so wheres the risk
where does it end
the ability to lend
to borrow, beg or steal
broker the deal
can't help but feel
someone should know better...

Mervyn King did warn the banks and more importantly their regulator the FSA that the business model had a major flaw.
When the BoE saves the day - why is the spotlight not turned on the FSA who ignored the warning?
As an institution the FSA has proved incompetent at regulating anything - instead busying itself with imposing layer after layer of bureaucracy on the consumer and letting the markets run amuck - I wonder in any one at the FSA knew what a CLO was last week - I suspect not.
Who at the FSA will get their head out of the sand and speak on this subject