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The financial crisis – in numbers

Following my last blog on the causes of the financial crises, here is a copy of my LinkedIn review of the book Whoops! Why Everyone Owes Everyone and No One Can Pay.

This book is a very entertaining and necessary read. It helped me to understand exactly what happened to our economy and how. Here are a few sobering numbers from it:

  • £116,000 – Iceland’s bank losses, per head
  • 700% – increase in income for the top 0.1% earners in the USA, from 1980 to 2007
  • 10% – drop in earnings for everyone below the top 20% in the US since 1970
  • £1,900,519,000,000 – RBS assets in 2008
  • £1,809,093,000,000 – RBS liabilities in 2008 (more than the GDP of the entire UK)
  • 1/61 – equity to debt ratio of Barclays in June 2008 (which means that if just 1/61th of the banks debts get written off, it would be insolvent)
  • 1/45 – average equity to debt ratio of Europe’s big banks in 2008
  • $2,000,000,000 – value of AIG at the time it was bailed out
  • $173,000,000,000 – cost of the AIG bail-out to the US taxpayer
  • $54,000,000,000,000 – size of swaps & derivatives market in 2008 (a bit less than the GDP of the whole planet)
  • 250,000 – number of mortgage brokers in the US in 2000 (none requiring any qualifications)
  • 70% – estimate of mortgage applications that were fraudulent or erroneous in 2005
  • 25.5% – annual Irish economic rate of decline
  • 50% – Britain’s share of Europe’s total credit card debt
  • 140,000,000,000 marks- the cost of a loaf of bread in Germany in 1923- as a result of inflation caused by printing money to prop up the debt laden economy
  • 2 years – longest period of cuts in UK public spending post-war
  • 6 years – proposed period of cuts in UK public spending, per the coalition
  • 2 – bank failures in Canada since 1923
  • 17,000 – bank failures in US since 1923

Below is my favourite passage from the book:

”                                                                                  ”

It’s a summary of the laws that have been passed to prevent future bank crashes, i.e. nothing.

One very obvious question that the book poses: where were all the economists when all this was happening? Why were they not able or willing to ring the alarm bells? What is the point of their profession if they can’t help us to understand real world situations like the impending banking system failure, and help us avoid it?

My only criticism is that the book didn’t really make it clear to me how the money/wealth was redistributed differently as a result of the failure of the banking system.

It seems to me that huge amounts of money (which I define as a claim on future goods and services) were effectively transferred from consumers to the owners and senior executives of big businesses. House price increases in effect allowed masses of people to incur debt (i.e. negative money) to acquire consumables (with little enduring value, except for their houses, if they kept them). The interest payments and profits on selling those good and providing the loans to buy them went to big business. That’s how wealth has percolated up from the poor and middle classes to the rich.

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