Friday, May 26, 2017

Where The Banks Have Gone Wrong

It would be very simplistic to place the blame for the global financial crisis at the door of one financial sector, or at the feet of any organization operating within that sector.

The reason why the finances of so many major countries are now unstable cannot be pinned down to one thing, but part of it is certainly attributable to unwise lending by banks and other financial institutions.

While it could not securely be argued that this was what caused the financial crashes we have seen, there is no doubt that it hasn’t helped.

Quite apart from anything else, there is a sense that risky lending looked like a good idea for the banks and risky borrowing looked like a great idea for the customers up until very recently.

For the banks, the idea was that the risks would bear greater rewards as money made more money and for the customers it seemed to be a case of all their Christmases coming at once.

As it turned out, there were big warning signs that everyone ignored – leading to the banks having tons of bad debt on their books and the customers being hamstrung in a place where they suddenly had greatly reduced means and a raft of payments to meet.

There are other reasons for this crash, of course, and no-one would try to deny this. But the upshot for most of us is that banks will not be so free with their money, so borrowing from now on has to be extra diligent.