Monday, August 20, 2007

Is the debt culture about to implode?

The BBC's Robert Preston has an interesting blog entry today explaining why the markets have been in such a tizz lately. Click here to read the full story, but his closing quotes echo what many people have been warning for years - that's modern capitalism is built on foundations of sand, with the "never never" debt culture finally reaching a point where surely it's going to give.

Preston says, "On Friday, in an attempt to shore up the US housing market, and by extension the value of all those crappy mortgage-backed bonds, the Fed signalled that interest rates would come down for all of us sooner rather than later.

"But that’s to treat the symptoms rather than the disease itself. To avoid a repeat of this kind of crisis, there needs to be a return to lenders taking some responsibility for the loans they make.

"Most bankers now think it’s quaint and absurd that once-upon-a time a bank manager actually managed a loan book and even talked to the individuals to whom he or she lent.

"Our brave new world – in which a Parisian or Frankfurt bank doesn’t even know whether it’s exposed to the US housing market through its Turkey Twizzler collateralised debt obligations – is neither healthy or sustainable."

It's too easy to make the (erroneous) connection between banks refusing to take responsibility for their actions with the rest of society, because Labour only governs in the UK, not in the US or anywhere else, but perhaps that's what modern life is all about - the "me" generation incapable of understanding that greed isn't the be-all and end-all of life, and following the money to the exclusion of all else will have ramifications for everyone further down the line. It looks like we might have just arrived further down that line...

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