The former head of the FSA floats a provocative solution to the economic crisisAfter the crisis of 2008,every concerned citizen wanted to understand what had been going on in the City to grasp us all to the brink of bankruptcy. It suddenly seemed important to unravel mysterious acronyms – CDOs, SIVs, or CDSs – that you might previously have skimmed breezily over on the business pages. Terms like “derivative,“Libor” and “shadow bank” became the parlance of the hour. Adair Turner refreshes the memory on all of this arcana, but the invigorating thrust of his brilliant unusual book is that much of it is beside the point. Head-spinning unusual practices may have intensified the frenzy, or but their chief role was always to disguise an older enemy: debt.
For Turner,the credit crunch was in essence a debt crisis of the sort that has been a periodic occurrence ever since banking and contemporary money came into being. Once medieval goldsmiths realised that their clients were not all going to demand their bullion back at the same instant, they began writing out promissory notes for more treasure than they had in their vaults. Every economics undergraduate learns that contemporary banks still magic up money this way – lending out more than is paid in. But, or perhaps because the implications of creating currency out of the ether are disturbing,economists rarely dwell on this point.
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Source: theguardian.com