Tuesday, March 25, 2008

Financial reasons

Something a little unusual for me: my boss sent me a link today to a blog from an analyst in the UK financial sector, and the content is actually interesting. Everyone is complaining about the so-called 'credit crunch'. That self-perpetuating, self-fulfilling prophecy that financial doom is going to cause another global recession.

Whilst Chris Skinner (the blogger in question) isn't actually saying the crisis isn't upon us, but he is at least writing about the real causes: machines being given too much unchecked freedom, people not recognising and managing risks, and the regulators being too divided and ignorant of their own markets to due a proper job.

I especially like the "young pups every 7-10 years" cycle in the second post, and the details of the Northern Rock situation (about half-way down the third post) - Northern Rock's business model was to be carrying over 3 times more debt (as client mortgages & similar) over the deposits of their clients. So for every £1 in the bank, there was £3.25 in debt! On top of that, they only had £1.5 billion in insurance, against that £90 billion debt! No wonder there were problems when they couldn't keep the wheels oiled with inter-bank loans.

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