We must not disillusion ourselves that the current financial crisis is just another 'crash' and all will be well after the 'correction'.

It is true that the capitalist society works on a boom and bust principle but when I talk about 'correction' in the current crisis, I am not talking about simply letting the system 'work itself out', I am talking about the end of the present global financial system as we know it  We have an opportunity to re-build a better and fairer system of wealth distribution – the world has paid a heavy price, especially the millions of wage earners who have lost their homes and savings. 

Before I delve into the 'real story', I want to take you back to the times when owning a home was reserved for the privileged few, when even getting a Bank account was a privilege and more importantly, when lending was subject to strict criteria.  Banking in those days was the 'professionals profession'.

Banking and Stockbroking were the professions of the privileged few and it was a 'club'.

Now let's take a look at the last thirty years – we have seen a drastic change in the sheer amount of lending, to the point where the lending criteria is simply, 'do you have a pulse?'You see, it is not easy for Banks to make money any more – not in the traditional fashion anyway!  Also, think of the amount of 'day trading' that occurs today in the markets.  Now before you all go crazy and tell me that this is the removal of the 'club' system and that it is opening up opportunities for all – think of the motives behind the system that actually created these so called 'wonder' opportunities! 

In the good old days, customers were recommended, mortgages were recommended as of course were all loans and importantly, the people were far more more creditworthy.  My Grandfather said to me one day ( I was nine and raised by my Grandparents and  my Mother), "son,if all of us stopped paying our mortgages, what would the Banks do)?  He was not far from the truth, but of course, because lending was far more restricted, there would have been a far greater chance that they would have got their money back and of course, the stigma of bankruptcy was huge in those days.  But a very good question all of you should ask your Bank today is that if each depositor walked into the Bank at the same time and asked for their money, would the Bank be able to cover it? Think about that question when you next negotiate an interest rate for a loan!

Simply put, we are in an era of hyper competition and the Banking system is far from immune – just look at the deals that have been thrown your way, just to get you to borrow money.  think of the automotive industry, it is no longer about buying cars, but getting the right type of credit.  think of huge global corporations – General Electric for example – where does most of it's revenue come from?  Not from manufacturing, but from the GE Capital arm of it's business – finance.  the same can be said of General Motors and it's GMAC finance arm.

..continued

~Neil