I was kind of hoping that the discussion would not head in this direction. Many of those "targets" were imposed by an entitiy without the banking industry!

Quote Originally Posted by MMI View Post
The Making of the Credit Crunch.

The trouble with the MBSs you describe is not that they were based upon mortgage loans, but that some of the loans that were packaged up should never have been made in the first place. This was entirely the fault of bankers who encouraged people to buy properties they could never afford. They had targets to meet: so many loans a week, or $/£ hundreds of thousands each month would produce a tasty commission for the adviser (who probably thought he was giving good advice according to his company's criteria). But scant attention was paid to the ability to repay ... perhaps it was thought that the usual provisions for bad debts would suffice, despite the careless lending policy being followed.

Now MBSs were bought by banks all over the world, believing each other's assurances that these were safe investments, backed by property, whose value was almost certain. It seems, in fact, that the amount of these investments the banks were holding was phenominal - Icelandic banks holding more than the whole population of their country could afford, for example. As the reality began to dawn on these bankers (cockney rhyming slang for something very uncomplimentary) they began to put up the shutters and stop lending against such securities. They also found they could not raise money against them, and so the crisis began, affecting one country's economy after another.

This is a gloabl problem affecting almost every economy in the world. It requires a global solution, which means international agreement and co-operation. It would be wrong and self-defeating to adopt isolationist, beggar-my-neighbour policies, because, as we have seen, if the banks ruined themselves by refusing to assist each other, so too will nations.