The Plan
Page 40
Consumers fell into the trap of expediency when banks installed ATMs on high streets, in supermarkets, airports, bus and railway stations, in almost every town and city across the world. Banks created Internet sites to wean customers off personalized services, prompting them to consult accounts via a faceless web of communication.
In the space of only ten years banking was transformed and human contact almost ceased to exist. Old fashioned bank clerks who had once greeted customers with a friendly smile, or a frown, had gone the way of the Dodo. ATMs had replaced human tellers for withdrawals and cold computer screens replaced the helpful bank employee.
Without banks nothing could function, every economic aspect of daily life, be it individual, business or government, depended on them. The power of their transnational mega structures exceeded that of most governments. Almost overnight the familiar high street establishments became faceless giants, whose tentacles reached into every nook and cranny of the world’s economic system. Their powers were limitless as they financed trade and commerce, manufacturing and transport, mineral extraction and oil production, property and construction, governments and wars.
Finally, it was the unbridled ambition of top banking executives, men like Fred the Shred, with their greed for wealth and power, that brought about the breakdown of the system, dragging entire nations down in their wake. What had gone wrong? Who was to blame? Had the lack of government supervision and regulation transformed some of the world’s best known banking institutions into mindless creatures?
They had willingly loaned money to countless naïve or inexperienced borrowers, who, attracted by low interest rates and lax self-certification, had overextended their modest resources. Almost every applicant, including those to whom home ownership had been an inaccessible dream, suddenly found themselves eligible for a mortgage loan. Modest families became owners of newly built homes complete with granite top kitchens, filled with every kind of modern appliance, marble bathrooms with pulsating showers, HD flat screen TVs and sparkling new SUVs parked in the driveway announcing their proud owner’s prosperity.
By what miracle had this transformation been made possible? In simple terms sub-prime mortgages were sold to investment banks, bundled and sliced-up into negotiable securities, then sold to investors on international markets. Mortgages held on homes in Fort Myers, Florida, were sold to hedge funds managed in New York or London, on behalf of unsuspecting institutional investors in Frankfurt or Tokyo.
The high street lending institution that traditionally held mortgages as guarantees against non-payment loans had in a manner of speaking passed the buck. These same institutions, though they continued to receive payments, which were forwarded on, had relinquished all responsibility as a result of the transformation and sale of mortgages in the form of negotiable securities.
Mortgage backed securities were bought and sold by the large investment banks: Bear Stearns, Lehmann Brothers, Goldman Sachs and Morgan Stanley, generating vast profits and rewards for their top executives in the form of staggeringly large bonuses.
The catch came when naïve home owners fell into arrears and defaulted once mortgage interest rates were switched from attractive introductory low interest rate offers to real market rates.
To save the banking system from having to support what had become unsustainable losses, the US government invented a programme that was known by the acronym TARP, designed to buy up toxic mortgage backed securities, thus avoiding a catastrophic collapse of the system. The threat however remained since it was nigh impossible to determine the value of worthless mortgage and consumer debt held by endangered banks and financial institutions, a problem that would trouble the US economy for years to come.
Chapter 40 PALM OIL AND COFFEE