The Bailouts

Banks used their power to create money effectively out of nothing to pump hundreds of billions into risky mortgages and push the prices of housing out of reach of ordinary people.

bailout

The authorities had designed some rules and regulations to stop this process getting out of hand. But the banks found clever ways around the these rules.  By late 2007, the amount of money they were creating each year was completely out of control.

The banks created £176 billion in 2007, just before the crisis. That’s more than we spent on schools, hospitals, universities, the NHS and the police all put together.

As well as earning the banks a huge profits thanks to extra interest payments, all this new money (which could only be spent on houses) pushed up the cost of house by around three times.

This meant that whereas in 1960 a house would have cost somebody about three and a half years worth of wages, in 2010, a house will cost nearly ten years’ worth of wages.

The scale at which banks were abusing their power became so extensive that eventually it all came crashing down.

The banks had gambled away so much of the money they created into risky and complicated deals, that when homeowners began to struggle under the weight of paying off a huge mortgage on a house they thought would only ever go up in value, they started to default on their loans, by handing the keys back to the bank or declaring bankruptcy.

The banks started reporting huge losses, and people began panicking that all their money was going to disappear into the thin air from which it was created.

The banks then received the biggest handout of taxpayer money in the history of the world.

After sparking the worst recession since the Great Depression, the banks received £13,000 of support for every man woman and child alive in the UK.

Despite this, in 2008 and 2009 the banks paid out about £10 billion in bonuses to their already highly paid staff. Most of the banks paying these bonuses would not even exist were it not for the money provided by the taxpayer.

We still don’t know just how much of this money the taxpayer will get back. But even if we do get some money back from the banks, we’ve already lost hundreds of thousands of jobs and seen good small businesses wiped out by the recession. We’ve paid an enormous amount of money for a return to business as usual for the banks, while significant damage has been done to the economy. Our businesses are struggling, unemployment is rising, and times are still hard for many people. The spending cuts and tax rises are only going to make it harder.