threesixty

thats deep!

http://en.wikipedia.org/wiki/Chapter_11 Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to any business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, while Chapter 13 provides a reorganization process for the majority of private individuals with unsecured debts of less than $336,900.00 and secured debts of less than $1,010,650.00 as of April 1, 2007 It seems that chapter 11 keeps the company intact and offers protection from creditors (vultures ..). Whereas chapter 7 is more what the UK does, i.e. liquidation and dissolving the company is quickly as possible (i.e. Woolworths). i read somewhere that the US attitude to bankruptcy is far healthier than what we have, thats why they are naturally more entrepreneurial than us.. makes sense to me.

http://en.wikipedia.org/wiki/Fractional_reserve Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all deposits immediately upon demand. This practice is universal in modern banking.[1]

Isn't Chapter 11 a restructure of debts, not that you'll never pay them? I thought it just changes the debt schedule to something more manageable. A bankruptcy tends to mean that no one can get money from you, ever. In this country RBS could have taken their assets and resold them and so on. I'll bet the assets sold separately for a company that big are worth far more than their debts. Win, win IMO. I'd be more worried if the debtor was just another huge finanical institution preteding to worth a lot but with no real assets...

This is an interesting thread. For me, King Bimbo and Injin both represent micro and macro perspectives. From an individual’s point of view, our reality is that cash in your hand will allow you to survive. It will buy you goods and services that are essential to us. On top of that we have the threat of prison/violence if we don’t get that cash in our hands to pay for taxes etc..However, in order to know what is really going on in any society we have to look at things collectively, i.e. a macro perspective. There is no point in 3 families that live in Chelsea saying that the economy is fine because they have money, when everyone one else in London is poor. The experience of those families is not typical and when looked at in context is completely misleading. The truth is the majority of money that is lent out to buy a house or fund a business technically doesn’t actually exist. It only “works” as a form of exchange because the borrower has “promised” to pay it back at sometime in the future. The process is enforced by a government that can punish people who don’t pay and a society that doesn’t know any better and has opted into a system that is inherently unjust. From a macro perspective the money doesn’t actually exist because governments allow banks to inflate the amount of money they actually have by only demanding that a bank have 10% of it’s assets readily available to give back when asked. Obviously, it is extremely rare that all creditors will ask for their money back at one time, so the illusion can remain. But Injin is 100% correct, the banking system from a macro perspective is an elaborate illusion. The only thing that is actually tangible, is the “blood, sweat and tears” in labour that we give and the things that are built/found/extracted with that labour. They are real, money actually isn’t. Injin is also correct in saying that from a macro perspective “defaults” only serve to give over what is actually “real” to people who have used what “isn’t real” to get it. From a macro perspective a bank has not done any real “work” to get the house it has repossessed or the business it has taken over. It has literally invented the money to loan to you to buy a house and can either get the invented money back plus huge interest, or take a real asset in exchange. Its like magic! A bank is only concerned with keeping the “system” going and to them that means meeting the capital adequacy requirements that central banks and governments have agreed upon. As long as they have this 10% or so in assets the bank can continue to play this game. Because there assets (i.e. securitied mortgages from America) have been devalued they need a some more real funds to prop up their assets. So they are now engaged in getting more savers in as a result. But don’t be confused, they are still not lending the same money given to them by their savers, they are only lending a “fraction” of the what savers give them. That’s why the whole thing is a confidence trick. The credit crunch is happening because a bunch of people at the top of this game (pyramid, ponzi scheme etc..) have decided to say it actually matters whether the “promise” that seals all the values of the assets they have is worthy or not. In reality they could have refinanced those loans and kept the whole thing going for as long as they wanted. But the guys at the top of the chain decided to say it matters that these people at the bottom can’t pay at this point in time. Now the people at the top of the chain will get “real” assets for practically nothing as people with debts cant pay these institutions. The money is debt video, far from being propaganda is actually pretty informative. If you watch it all you will see that the use of credit contraction is by design and is used by central banks to transfer ownership of real wealth. At the great expense of the normal people of this world. America fought a civil war with the English over this exact process. But as we can see now, the banks have won. The bankers have been ridiculed by the press as being idiots, and we are all laughing at them. The goverements are quick to put them to shame as well. But in actuality, they are far smarter than all of us, goverments included. They have managed to define a system that will ALWAYS benefit their interests and put them in control of the world. Since we have let them define our means of exchange, they control us. They really are the masters of the universe…

The problem with the "sit it out" argument is that unlike 10/15 yrs ago most people HAVE to remortgage at one point within 2-4yrs of taking out of a mortgage. Otherwise the Standard Variable rate is going to murder you! Therefore all this Kirsty Allsop crap about "you only need to worry if your going to sell" is just BS. Since the current economic problems started (late 2007) everyone with a mortgage is practically on time bomb mode. They have a maximum of 4yrs or so since that date in which they they hope that their equity hasn't eroded, leaving them owing more than the property is worth. It is of "ultra" significance that 70% of the mortgages you could have had before late 2007 are not here anymore. So the majority of people who are going to NEED to remortgage in the next 2/3yrs could be financially ruined for decades! Even if the big banks like HSBC etc.. wanted to increase the lend to cover the 70% drop they couldnt do it. They do not have the relevant capital to cover the amount of loans they would need to make, furthermore they cannot borrow from the markets to make the shortfall. That is why Gordon is panicking and doing anything he can to inject capital in to the banks, but on paper (at least to me) it looks like an impossible struggle. The housing market will HAVE to contract to 2001 levels because that is the only thing this economy can actually support right now. It's not about sentiment, its not about whether Peter and Mary would love that quaint cottage in the country, its all about what is financially possible and what isnt. n.b. Please remember that when these people have to remortage the banks will have to revalue their homes. It's going to be hard for EA's in an area (i.e maidstone) to argue with all these lower valuations from the banks and try to buck the trend. John Varley at Barclays has already said he expects at least another 15% drop this year. Valuations are not based on what the vendor thinks something is worth, but what the bank/surveryors say its worth.. as you were..

The inventor is in charge of his invention. The inventor controls the people that run his invention. He invented the FSA and divested power from the BOE. With the sole purpose of taking credit when things go good and blaming others when things go bad. He created a psuedo "hands off" culture between the BOE and the Government and made it look like the BOE was independent. However in the last 6 months we can see just how "independent" the BOE are!! He "ENCOURAGED" the BOE to keep rate low and MADE THEM SEPARATE the inflatory figure of rising house prices to make it look like inflation was under control. The bulk of any families living cost is their residence, yet that wasn't counted in the inflation figure.. duhh!!! GORDON has created all the new bodies that have messed up in the past 1yr, whether its losing data, the FSA with Northern Rock etc.. HE has been in power for 11 F*CKING YEARS!!! Thats a long time to still blame your predecessors for all your problems. People attack the Tories as if they've been in power for 11yrs! It is just psychotic to suggest the Tories have had MORE influence over the way our society has been run than Gordon has!! The press/public have no understanding how these debts will manifest themselves over the next 50yrs. They seriously think its possible for a country to borrow more than it actually makes in a whole year and pay it back with interest without incurring decades of pain! Africa is still paying back loans from the 70's!! It took the UK 20-30 yrs to pay back America for the war. The UK has just borrowed itself into oblivion in less than a year. How numerate can a man be if he chose to major in History and has never run a business in his life? Answers on a postcard please...

As my good friend Mervyn says .." Debt is real"! Not paying debts is only remotely useful if you decide not to live in the "system". However, as you can see around you every day, the government is determined to make EVERYONE live in the system without choice. House price inflation coupled with ultra low wage inflation over the last 10 yrs has meant that it was impossible to live a "nice" life without credit. They're are a lot of things you cant do without a decent credit rating. Some jobs (especially anything finanicial) will not give you a job with a bad credit rating or if you have been bankrupt. You cant even get a decent mobile phone on a contract without good credit. You end up paying through the nose to do normal things when you dont have good credit. You are basically ostracised from the financial world. Even with a few defaults your pretty much stuffed. The only people who benefit from "opting" out of the system are those that wouldnt get the type of jobs that need a bank account/credit check in the first place. Or people who come from/have large amounts of cash anyway. The other 90% of the country is severly impacted by bad credit and not paying back debt. This isn't america where you can restructure (chapter 11) and start again and everythings cool. In this country debt follows you to the grave and beyond. My advice would be to sell a car (you might need the other one to do a contract in some area that you cant get to easily). Pay the minimum you can on all your debts for as long as you can. Try not to let "them" know anything about your personal situation and ride it out. Banks WILL NOT help you restructure your debts if you tell them your not earning anything! You will be stuffed with no exit. You cant even do an IVA without an income of some sort. At the end of the day, when this crash starts to really gather pace there will be a financial aparthied.Those with perfect credit and those without. Trust me, there will be a HUGE contrast in the way these two groups live in the future. Try not F up your credit. And better still dont EVER borrow for something that you can afford with a few months of saving...

If they are considering making you redundant for the sake of an extra 17k they clearly dont NEED you. Redundancy basically means the position does not exist any more and no one can take that position for a given period of time. Businesses in trouble only pay for things they NEED. 17k is not a lot to a company if this guy is amazing at his job and making them 100k a year. The fact is this guy is, at this time, this guy is not ESSENTIAL staff and he's either going to go in the first/second or third round of redundancy. To me it seems a certainty that you will be "let go". The fact they even put this proposition to you is an indication that they dont need you anyway. You might as well take the bonus, try to get a better redundancy payment out of them and be looking for a new job ASAP.

This is an epic race against time for the government. The reason joe public feels ok right now is that the government keep changing the rules. The country would be in complete ruins right now had it not been for government intervention. However, the question is, does changing the rules of the game change the outcome or just delay the inevitable? Is the bailout and all the intervention just morphine for a chronic illness? The governments intervention has to be temporary because logic dictates that you cant keep pulling money out of your ****. At some point there will be no money left in the future to do this. You will also devalue your currency so much that every bit of new money you introduce into the economy changes the purchasing power of the previous load of money. A country that has high inflation and a cheap currency that is geared to buy 80% of its resources from abroad is completely f*cked in the long run. It seems that the government maybe planning a snap election early next year. In cold weather with a low turnout the government may expect to survive if it can get enough of the press to lay off them for a few months (they seem to be successful at doing this since Alistair Campbell's return). If they do go for this it will indicate that the UK is TOAST! It would tell me that they have reached the limit to which they can change the rules and fudge the outlook of the economy. Gordon is so risk averse when it comes to his own job that if he decides to risk an early election, he KNOWS the economy will be in ruins by 2010. That is the signal my friends. A snap election now and you can bet that Britain will be in the most severe downturn in 2010. All that's happening right now is Mr Campbell is calling in favours from the press to prepare for this event. If the public fall for this it will be as shameful on us as the Americans going for a third republican term. It would signal the end of whatever "democracy" we thought we had. Simply because it would mean the only real defence we have i.e. "the press" is as stupid and gullable as the public. Without the press (love them or loathe them) we have no defence against the politicians of the today.

I'm a bit worried that Zanu Labour and Gordon Brown are spinning their way out of responsibility for this mess. People are actually buying the whole line that its a global problem and nothing to do with the present government of the last 12 yrs. The press are complicit in this as well and it's scaring me senseless that Labour could get in again. I think I'll leave the country because I cannot handle the stupidity of a public that cant add 2 and 2 together. The facts are.. We had billions in the bank as a country before labour took over. Our economy was growing quite well. We now have a huge deficit, unheard of, even in war time. We have not saved any money in case we have any problems. (i.e. like now!). And on top of that he has been saying that interest rates are not set by the government yet he and the USA have essentially forced the BOE to keep interest rates low after 9/11 which has caused the biggest bubble known to mankind. Now that the world is waking up to the shocking fact that money is introduced through debt, it's all making sense. GORDONS POLICY HAS BEEN TO GET EVERYONE AND ANYTHING IN TO DEBT TO GROW HIS ECONOMY AND KEEP HIM ELECTED I repeat ... GORDONS POLICY HAS BEEN TO GET EVERYONE AND ANYTHING IN TO DEBT TO GROW HIS ECONOMY AND KEEP HIM ELECTED Thats why your children will have 30k worth of debt by the time their 21. Thats why there has been no point in saving because you lose money through inflation. Better to spend and borrow and spend etc .. etc.. Thats why having a slightly dodgy credit rating can destroy your life because everything is so inflated due to this borrowing bubble that no one can afford to live a decent lifestyle without credit! Thats why businesses have been encouraged to have NO MONEY IN THE BANK and BORROW the money to pay salaries. Businesses that are cash rich have been frowned upon by markets and were liable to takeovers because "wise men" say that they money should be "invested" or given to shareholders, and the company should borrow short term money to keep going. EVERYTHING IS DESIGNED FOR YOU TO BORROW MONEY SO THAT THE BANKS MAKE EVEN MORE MONEY OFF YOU. It's why the disparity between the rich and poor has been GROWING rather than shrinking over the last 15yrs. It's why a wife with 3 kids still HAS TO WORK even though the husband has a well paid professional job that he may have studied his **** off for. There is no option anymore. It is an anglo american problem that has spread to the rest of the world rather than a worldwide problem that has spread to the Uk/US. WE CREATED THIS! Has it not escaped the attention of people here that London was/is the financial centre of the world where all these funny financial products are made? The FSA is down the road from all the financial institutions and yet could not see what was directly under its nose? Yet a bunch of people on a website (this one) seemed to know more than the government and FSA put together and we dont even get paid to know! This country is suffering from a lack of RESPONSIBLITY for its actions. From top to bottom. Thats why school kids kill each other and claim society made them do it, and governments ****** up in spectaculat fashion and yet claim that the "world" made them do it. ACCEPT SOME ******ING RESPONSIBILITY and resign! THIS WHOLE SITUATION IS BY DESIGN. GORDON IS COMPLICIT IN THIS DESIGN. He is either stupid, naive or evil. It is that simple. (Sorry for the rant, havent had any breakfast yet...)

I have to say, that is the funniest thing I've seen all week. Just fell out of bed laughing!.. the orb of pure energy. LOL!

I think your forgetting a few key things. a) The object of the bail out is to get things back to normal as soon as possible by restoring the balance sheets of banks so that they can lend out again without worrying that they dont have enough in the kitty. But what is "normal?". Normal is gearing money/assets to incredible amounts and using that to make more money. That can never happen again because we have all seen what is under the bank managers kilt! No one trusts anyone or their motives. Gearing works on trust. Its the end of an era. Therefore they have to lend at a fraction of the gearing levels that we are all used to. Which means 50% of businesses will go to the wall regardless. Because everybodys business model for the last 20yrs has been to have as little cash as possible, invest everything else and borrow short term to cover your day to day. So if banks contract lending (which they will have to) then the public suffer anyway. The extra money in assets that these "bankers" will be able to say they have and use to deposit in other areas/countries will have the benefit of inflating the cost of everything known to man. So on top of half the taxpayers losing their jobs, they will have no money to buy these inflated goods and the lack of tax being paid will mean even less services provided for the american people. Meanwhile the rich with all their restored wealth will move country, hide funds and live a bit less luxuriuously, but live well all the same. A few bankers will be prosecuted (scapegoated) and that will be it. The facts are that "normality" is not real. Pain is the only way back to reality. The bailout is the equivalent of a getaway car for the select few banking royalty. If you really think that american based banks that are heavily influenced by foreign shareholders are going to to restore lending at anything like what america expects then your are living in cuckoo land. In the jungle, animals will always protect themselves and their kin first.. watch and learn.

There lies the problem. The US population is f*cked whichever way you look at it. Yet the bankers/middle class equity share holders et al. want to sort there sh*t out and then leave the MAJORITY of the population f*cked. Thats why its a bad idea. If it all goes down EVERYONE should share the pain. Wall St need to feel it too, especially since they created it. Dont you see how disgusting/evil the whole thing is? If you dont have much, what have you got to lose? It seems to me that the american public are "down for whatever" , whereas the rich minority are suicidal at the thought of this bailout not succeeding. Yet the poor majority will pay for this scheme forever, just for the right of the rich to remain rich! If the bill was so neccessary, how can it have been amended in its present form in the space of a week when initially Paulson was saying it was desperate.Is this yet another fake emergency? Maybe its the "boy who cried wolf" for real this time, but if it were me I'd call Fed's bluff till it all crashes and we all go down. Is that not the meaning of the "United" states??

What I gathered is that is a no win situation that the Fed are spinning is winnable. What Anatole has pointed out is that this action effectively signals that investing in anything remotely risky right now (i.e. banking) is just not going to happen for your long term investors. Those investors are precisely the people that you need to get you out of this mess. Not the sell 1000 shares a minute stock brokers/investment bankers, but the asset managers and institutional investors. How do you restore confidence in a sector where these people wont invest? The signal that the Fed has sent (rightly or wrongly) is that this is the wild west out here, take it or leave it. Long term investors dont do "wild west" investing ... Also on the lady's contribution, she is a an apologist for the investment banks. That seems to be her job (or at least her angle). I dont care how cheap the credit was, it takes two to tango. I detest spin of any sort and she was doing a PR job which is why Paxman attacked her. It had nothing to do with her being a woman. These people have all the knowledge and no common sense... Where not all stupid out here. Lastly, maybe I'm a crazy pessimist but this whole thing really doesnt look good. The US have spent 100's of billions of FUTURE income on war. Have exposure to debts that is mind boggling, and have the largest budget deficit in the whole world (check the cia's website). The only thing they had going for it is a market of 300 million aggressive spenders, but they are all about to lose their credit cards having lost their houses already in the crunch. How on earth does the US get it self out of this one? They are broke, broke, broke! The US is about to be sold into slavery to the far east/middle east. Is there really a way out?

After watching that google money lenders stuff the whole thing looks like a carbon copy of the 1930's. In the great depression the "money lenders" expanded credit and then abruptly cut the taps off. Those banks that were "in on it" were told what was going to happen and diversified just in time. Funny how Goldman always seems to win in these situations...... The reason for the depression was for the central banks to gain control of major assets by bringing institutions to their knees. Exactly the same thing seems to be happening today. Huge companies like Bear Stearns, Merryl and Lehman are now changing hands. The whole thing just looks exactly the same as the 30's. The thing is Anatole has twigged it and he realise how stupid he's been. Thats why he made the Mellon/Paulson analogy. He also knows everyones fu*ked as it were, because he pointed out the elephant in the room: who is gonna invest now that you've effectivley wiped out all the shareholders of 3 major institutions in less than 6 months? No one's gonna do it, NO ONE! Thats why Barclays left the poker table .. Hank Paulson has just bought himself the next great depression...

Yeah, he does sound slightly confused.. but previously he'd been saying that this not going to effect the real economy. Like this was just some isolated rubbish going on with a few bankers... The lady in the middle is just an idiot pr woman btw..

Finally, Anatole is seeing the light.. I thought this guy was on funny pills. He is more or less the only bear in the newsnight room right now..

I think everyone is forgetting that in London your not really buying a house, your effectively buying land. The right to a piece of London is what the last 10yrs has been about. The actual building has been irrelevant for a lot of "investors" for a long time. Houses dont cost much to build from scratch, maybe 30-40 grand. So the extra 300k is just a price derived from supply and demand (demand being the will to buy + credit given by the banks). The only reason details like "layout" etc.. come into the equation is when the demand side changes (i.e. due to reduced credit). Now housing is becoming rational again, and is about how well a house provides its function, rather than how much money can this house make in 5 yrs. The government has been forcing (sorry encouraging...) us to use housing as a "financial instrument" for the last 10yrs to make up for the fact that they dont want to give us a pension or healthcare in the long run. On London being nice.. As a previous poster said, alot of jobs are ONLY in London, so unless you retrain it is hard to move out. Secondly, London is huge. Zone 1 + 2 is not the whole of london. Theres Wanstead, Ealing, Finchley etc.. Zones 3/4/5 where houses cost the same as the nice houses in the home counties. I think the majority of people who hate London were not born there and dont really understand that London is not just Shoreditch.. The vibe in Snarebrook is not that much different to some places in Surrey, it's just that one location is 20 minutes to work and the other is 1.30 hrs... It's up to you really ....

I'm really starting to agree with what your saying here. If "we" know whats been happening then the people who are "paid to know" must know what's going on. The whole thing is sinister. Are the goverment that stupid or are they just actors? Does Yvette Cooper really believe what she says on C4 news or is she just really thick? My opinion is that when any of them get to office they all realise there are plans and agreements that they all have to follow through regardless of whether they are correct or not. The decisions that Gordon & co have made have been so bad that they almost seem like he had a gun put to his head when he made them. The begining of this whole thing starts with Thatcher and the UK's IMF/World Bank loans. We have been on the same trajectory ever since...

Ilford probably has the largest amount of updwardly mobile asians in the UK. Their are tons of asian run accountants / solicitor firms and independent estate agents run by asian people in Ilford. Because the community is fairly tight and inter related its been easier to commit mortage fraud in this area. By having so many family related businesses that are involved in getting a mortage (accountants, conveyancing and mortage broking) it's been far easier for them do fraud in the Ilford area than most other people. All you need is an accountant willing to create documents showing you earned x amount. It's not that hard...

Just had to post this response from the article in the Telegraph. I think it explains the issues at hand perfectly ... I was told years ago that every country that accepted "aid" from the IMF/World Bank were bound to implement changes linked to globlization. Countries were told to sell of government industries and specialize in certain types of industry. The conventional wisdom was that specialization produces better products and makes the global economy more efficient. Positives of this policy .. a) the UK is amazing at financial services Negatives a) The UK has no control over it's key services since they dont own them (i.e. Water company owned by germans etc..) Subsequently we have reduced soverignity (I wont even go into the EU stuff..) We are totally reliant on other countries for food/gas etc.. we are not self sufficient in any way. We dont even make cars anymore.. We are so f*cked.. The country has basically been stolen by stealth. Successive governments have made this possible. The credit crunch is just the latest "policy" to further this aim. It's all so obvious.. sorry for the rant ...

I always thought that inflation itself was not the problem. If prices go up by an equal amount then inflation doesnt really matter. What matters is "when" the price changes. If there is a lag in fuel going up between your salary going up to compensate the difference in purchasing power at that time is a problem. Is the velocity thing important because the more transactions there are the more occurances of the inflationary effect happening? i.e. inflation only effects anything when something is being purchased. If you wait for petrol to go down in price before you buy and your salary doesnt increase then there is no real inflationary effect. Velocity therefore is seems to be key in calculating the effects of inflation. The real problem with inflation for a goverment is that it ultimately effects the value of the pound. We are more dependent than ever on foreign goods (since we dont produce much of what we really need to survive ) therefore if the pound becomes too low to buy what we need we will reallys suffer. Also the goverments debt sky rockets because the pound is devalued. Leaving the government even less purshasing power than it has right now (which is nothing since we are broke). Maybe it would make sense to have the euro right now. Maybe it's inevitable given the protection from inflation that that provides... n.b. the above theories maybe be ******** but it made sense to me at the time! :-)

EXACTLY! It seems that the Government have "over steered" horrendously. The ultra low investment rates coupled with the lack of physical product this country has to sell has now made the ship uncontrollable. Setting interest rates really doesnt mean much anymore. Our fate isnt really in our hands, not for at least 5 yrs or so. The UK is going to get pushed and pulled all over the place at the whim of foreign companys and governments. The whole thing seems to be a terrible experiment gone wrong by some spotty grad's in a think tank somewhere. The sad thing is, the average joe with a mortgage and a job doesnt realise how bad this situation really is. The really dont have a clue...

That doesnt make sense. I thought banks create money using the fractional reserve system. The requirement to only have 10% of the cash on their books available gives them the opportunity to loan out the remaining 90%. In effect this 90% is "NEW" money since if customers dont come for their money all at once it doesnt matter if they use the remaining 90% to fund new loans/invest etc.. Therefore each deposit you make gives the banks the opportunity lend x9 times the amount that you gave them, and as long as everyone pays everyone back at a steady rate everyones happy. It also works the other way, i.e. if you borrow money from them. They then have say .. 10k on their books that you promise to pay them with interest. They use that amount as credit on their books. Even though they havent recieved it all back from you they take it as money they have to lend. Since they only need 10% of real cash at hand. So they go off and effectively make money with your future repayment (invest/lend etc..) and a while everyones happy. The banks have effectively introduced new money into the economy. The banks at present have cash flow problems. In effect if too many people default on their loans then they are stuck. The figures dont add up since the money they think their going to get is not their anymore and legally they cant pretend that it's there in the future. Subsequently the whole system unravels because there isnt the money to back their exposure. The banks start to hoard as much cash as possible and therefore dont want to loan to anyone just so they can survive. That is the credit crunch. All caused by their ability to create money based on debt. Basically banks make "new money" at the stroke of a pen. Is that not true?