Niceguy2….I have to agree with you on every point, bar one, the main role of Investment Banks in ‘causing’ the crash – remember Northern Rock, the first bank to go under, was not an investment bank – so highly paid bankers, who had been doing the same thing for the previous 30-years, became the convenient whipping post of governments/regulators that had been asleep to the dangers.
However, your opinion is universally accepted, but I can see we have some bright people on here, so I’m going to throw a more historically accurate cause ‘out there’, which suggests that a financial crash was not inevitable; take from this what you will.
Generally speaking, the late 2007 financial crash was caused by most western banks massively growing their balance sheets to unsustainable levels by lending to businesses and us , especially in commercial and retail property loans – and it was these £billions of everyday type loans being written of quarter after quarter, that resulted in those huge quarterly losses until relatively recently.
The TRIGGER of the crash, was the U.S. Sub Prime Loan crisis, that provide millions of poorer people with mortgages, a facility that had been around since the 1930’s, but with successive U.S. Presidents looking for votes, passed legislation after legislation to ENCOURAGE riskier loans – and the banks seeing lower interest rates/risk, loaned hand over fist, as these loans were always SECURITIZED (packaged up and sold to investors) – a lending model very similar to the Halifax and Northern Rock mortgage loans, that believe it or not, were less risky.
The pooh hit the fan when investors realised that the mortgage ‘packages’ they owned, put together by high street banks/brokers, had a much higher default rate than HISTORICALLY expected – but as those investors had the ‘right’ to put them back to the bank if defaults reached certain levels – all of a sudden it was POSSIBLE the $trillions of mortgage loans could come back on the investment and large retail banks balance sheets.
The RESULT, was no one could trust U.S. banks, especially OTHER global banks, so global banking contagion became a real possibility, so the $trillions a day GLOBAL inter-bank market dried up, banks then had huge trouble funding their daily activity = a financial recession = an economic recession.
So THE BROKEN MARKET was the interbank market, NOT the banks themselves scrambling for recycled short term funds that had NEVER dried up since the Great Depression in the late 1920’s, and if governments had moved faster to UNBLOCK the interbank market, arguably we would not have had the financial crisis, leading to the biggest recession in 80-years.
YES the growth in finance & debt had reached a critical stage, but arguably IF spotted sooner, there was no reason that through increased reverse requirement etc, the credit growth/debt boom, couldn’t have been deflated over time, rather than a credit crash.
If any questions on my views, I’d be happy to try answer them, but I understand that it is easier to have a cup of tea and go along with the crowd on this subject.lol