by Maria C Collins

Created on: April 11, 2009   Last Updated: November 26, 2010

The World has come to the present financial crisis through a lack of common sense. Both America and Britain almost totally deregulated their financial systems, and stopped watching over banks, financial services and stock markets. They also stopped bringing them to account. In both Britain and America, the rule became that "the market should decide". They did not seem to have studied history. The market can be swayed by those with enough of an interest. Both Britain and America urged other countries to follow their example, and deregulate their financial systems. It did not occur to them that other countries might be right in retaining financial regulation.

Successive British governments, of both persuasions, have continued with this "laissez faire" policy, arguing that financial services were the country's future and that they were the engine of the country's economy. Common sense should have told governments, that money, lack of regulation coupled with human nature and a gung ho attitude, make people greedy and fool-hardy.

The Banks got greedy, and took foolhardy risks, lending willy nilly to people, who could not pay off loans. Then, they offset those risks by trading them, with one another, until none of them knew where, or what, their liabilities were, and to what risks they were exposed. In the United Kingdom, where previously there had been very strict rules about mortgage lending, suddenly couples could borrow 6, 7 or more times their joint annual salary instead of three times the man's salary and one times the woman's. Where once couples had to have a ten per cent deposit to even be considered for a mortgage, banks were advertising 100 percent mortgages. Banks also suddenly decided that they were not there any longer to look after people, and their money, but to sell them as much as possible in the way of personal loans and credit cards.

The stock traders then set up hedge funds, these worked like rich people's betting shops, but not for betting on horse racing, or football match results, but for stocks and shares on the stock markets. They did not just bet on "winning" shares, those that were rising in the market, but on losing shares too, those which would fall. Stock markets are sensitive creatures, a snippet of gossip, which need not even be true, or whisper of doubt, can send them into panic. It is a tiny step from betting on shares that you think will fail, to ensuring that they do, and certainly some unscrupulous and greedy people

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