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Hey, remember that MASSIVE financial crash ten years ago?

We look at the banking system that let it happen, and whether anything's changed since then

The first iPhone, the final Harry Potter book, Britney shaving her head, the start of the biggest global banking crisis the world has ever seen.

It’s an anniversary that you probably don’t think about much. But the fallout from the financial crisis and the impact it had on the global economy over the past 10 years has been pretty massive… and the big question left over after it all is to what extent banks have actually changed the way their work to make sure it doesn’t happen again.

So we decided to take a look at banks. Why they’re so powerful, what actually happened in 2007 and 2008, and what, if anything, has actually changed?


Newsletter cover image
It's 2007, baby

First up, the theory

There’s some pretty basic theory that underpins how banks work: Banking and the financial system is essentially just a resource to get money from people who have it, and want to put it away somewhere (savers), to people who need it (borrowers). When you put your money in a bank, it doesn’t just sit there.

The bank will lend it to someone else, charging them more in interest than you’ll earn on your savings – which is essentially how a bank makes its money. The financial system lets money from pension funds in Iowa be used by construction sites in Madrid.

But that basic theory leaves a lot out. Banks have a lot more power to control the amount of money in circulation than by the physical deposits people make in it.

Confused, and sick of reading? No probs - here’s a video that’ll clear it all up in three minutes:

How do banks REALLY work?

Okay, so it looks like banking doesn’t work quite like the textbooks say. What are they getting wrong?

Laurie Santos is a professor at Yale. She’s convinced that we’re basically pulling the wool over our eyes in terms of how smart we think we are. Turns out, we’re not that smart. And sometimes we make stupid decisions. And sometimes, monkeys could make better ones, or at least equally bad ones. These are her actual words: “Like us, they’d evaluate their choices in terms of totally insignificant reference points. They paid too much attention to losses. And they overvalued the stuff they owned.”



The whole point in this, Santos argues, is to show that we need to put systems in place to help us understand where our irrational choices come from, and make the systems we use (like the banking system) “more irrational-user-friendly”.

Because last time we didn’t do that, we caused the biggest financial disaster of our lifetimes (so far at least, touch wood).

So what actually happened in 2007, other than Britney shaving her head?

In 2007, cracks started to appear in the global financial system. The long story short is that banks lent money to people who couldn’t afford it. To make the loan less of a risk for the person giving it out, they’d package it together with other less risky ones into things called “CDOs” and sell those off, ensuring the buyer that the riskier ones were totally safe because they were all wrapped up with really secure ones.

That didn’t work. In 2008, a huge investment bank called Lehman Brothers went bust. Governments ended up stepping in to bail other banks out to stop it happening to them too.

The full story of what happened is really complicated. Who exactly to blame is even more complicated. Some would say bankers shouldn’t have made loans people couldn’t afford. Bankers would say people shouldn’t have taken out loans they couldn’t afford. Economists would say governments should have set some rules to make sure banks weren’t allowed to give people loans they couldn’t afford. The Queen would say (it’s true, she did) economists should have seen all this coming.


Could movies teach us more about the financial crisis than economists?

The Big Short


What we do know is that the whole thing was chock a block with drama, greed, and tragedy… the perfect recipe for a Hollywood hit. Because no one actually wants to sit and read through every economist’s interpretation of events, we decided to do what we do best and take to Netflix instead, to see if movies can teach us anything about the crash.

And do you know what? They kind of can – fine, we still don’t fully understand the stuff about CDOs and bonds etc, but the films do help make sense of how people thought about money pre-2008 - how invincible banks thought they were, and how safe people thought their money would be with a bank.

So are bankers really evil, or just misunderstood?

Bankers headlines


Most people - and newspapers, and movies - blame the bankers for the crash. Michael Moore’s documentary ends with him covering the entire of Wall Street with crime scene tape. And if you’re a banker, you’re not gonna like what Urban Dictionary has to say about you.

And yet hundreds of thousands of people apply for banking jobs every year - not least because the salaries are pretty sweet. We might love to hate them, but a lot of us still want to be them.

But is it really what it looks like in the movies? We spoke to a bunch (anonymously) about their lifestyles, working hours, and what they wish people understood about finance. “People think we’re worse than scum,” one said. “But really I think it’s nothing more than envy...we’re not just sitting around plotting how to become rich.”


The financial crash & you

Although it might seem like a banker in a fancy office Wall Street has very little to do with your life, it’s not too many degrees of separation before their actions have an impact on the pay packets of everybody else.

We spoke to Alberto, who worked as a cleaner in a bank during the financial crisis. Originally, we wanted to find out what the industry looked like from someone who wasn’t sitting in the office chair. But we ended up talking about a much bigger question - how the financial crisis still affects cleaners’ working conditions, and probably a whole range of other jobs too, a decade later.

So why does all this matter? Well, banks are one of the main Big Economics Places that we all deal with pretty much every day. We’re using them constantly, whether it’s getting cash from an ATM, or buying something on card. But like Laurie Santos says, unless we try and understand them, and get the people who design them to be a little more accepting of how humans (and monkeys) think, things could all come crashing right back down… financial crisis movie marathon, anyone?

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  • Macrocompassion

    Look to who owns the land of Greece and why they are not using it properly!

    Discover how much the value of the land is being speculated in by holding it unused and the resulting lack of opportunity. Why can’t small scale farmers begin their own production of farm produce and the selling of it to local suppliers for domestic consumption?

    Adam Smith (“Wealth of Nations”,
    1776) says that land is one of the 3 factors of production (the other 2 being
    labor and durable capital goods). The usefulness of land is in the price that
    tenants pay as rent, for access rights to the particular site in question. Land
    is often considered as being a form of capital, since it is traded similarly to
    other durable capital goods items. However it is not actually man-made, so rightly
    it does not fall within this category. The land was originally a gift of nature
    (if not of God) for which all people should be free to share in its use. But its
    site-value greatly depends on location and is related to the community density
    in that region, as well as the natural resources such as rivers, minerals,
    animals or plants of specific use or beauty, when or after it is possible to reach them. Consequently,
    most of the land value is created by man within his society and therefore its
    advantage should logically and ethically be returned to the community for its
    general use, as explained by Martin Adams (in “LAND”, 2015).

    However, due to our existing laws, land is owned and formally registered and its
    value is traded, even though it can’t be moved to another place, like other
    kinds of capital goods. This right of ownership gives the landlord a big
    advantage over the rest of the community because he determines how it may be
    used, or if it is to be held out of use, until the city grows and the site
    becomes more valuable. Thus speculation in land values is encouraged by the law,
    in treating a site of land as personal or private property—as if it were an
    item of capital goods, although it is not (Mason Gaffney and Fred Harrison:
    “The Corruption of Economics”, 2005).

    Regarding taxation and local community spending, the municipal taxes we pay are
    partly used for improving the infrastructure. This means that the land becomes
    more useful and valuable without the landlord doing anything—he/she will always
    benefit from our present tax regime. This also applies when the status of unused
    land is upgraded and it becomes fit for community development. Then when this
    news is leaked, after landlords and banks corruptly pay for this information,
    speculation in land values is rife. There are many advantages if the land
    values were taxed instead of the many different kinds of production-based
    activities such as earnings, purchases, capital gains, home and foreign company
    investments, etc., (with all their regulations, complications and loop-holes).
    The only people due to lose from this are those who exploit the growing values
    of the land over the past years, when “mere” land ownership confers a financial
    benefit, without the owner doing a scrap of work. Consequently, for a truly
    socially just kind of taxation to apply there can only be one
    method–Land-Value Taxation.

    Consider how land becomes
    valuable. New settlers in a region begin to specialize and this improves their
    efficiency in producing specific goods. The central land is the most valuable
    due to easy availability and least transport needed. This distribution in land
    values is created by the community and (after an initial start), not by the
    natural resources. As the city expands, speculators in land values will
    deliberately hold potentially useful sites out of use, until planning and
    development have permitted their values to grow. Meanwhile there is fierce
    competition for access to the most suitable sites for housing, agriculture and
    manufacturing industries. The limited availability of useful land means that the
    high rents paid by tenants make their residence more costly and the provision
    of goods and services more expensive. It also creates unemployment, causing
    wages to be lowered by the monopolists, who control the big producing
    organizations, and whose land was already obtained when it was cheap. Consequently
    this basic structure of our current macroeconomics system, works to limit
    opportunity and to create poverty, see above reference.

    The most basic cause of our continuing poverty is the lack of properly paid
    work and the reason for this is the lack of opportunity of access to the land
    on which the work must be done. The useful land is monopolized by a landlord
    who either holds it out of use (for speculation in its rising value), or
    charges the tenant heavily for its right of access. In the case when the
    landlord is also the producer, he/she has a monopolistic control of the land
    and of the produce too, and can charge more for this access right than what an
    entrepreneur, who seeks greater opportunity, normally would be able to afford.

    A wise and sensible government would recognize that this problem derives from
    lack of opportunity to work and earn. It can be solved by the use of a tax
    system which encourages the proper use of land and which stops penalizing
    everything and everybody else. Such a tax system was proposed 136 years ago by
    Henry George, a (North) American economist, but somehow most macro-economists
    seem never to have heard of him, in common with a whole lot of other experts.
    (I would guess that they don’t want to know, which is worse!) In “Progress and
    Poverty” 1879, Henry George proposed a single tax on land values without other
    kinds of tax on produce, services, capital gains etc. This regime of land value
    tax (LVT) has 17 features which benefit almost everyone in the economy, except
    for landlords and banks, who/which do nothing productive and find that land
    dominance has its own reward.

    17 Aspects of LVT Affecting Government, Land Owners, Communities and

    Four Aspects for Government:

    1. LVT, adds to the national
    income as do other taxation systems, but it replaces them.

    2. The cost of collecting the LVT is less than for all of the production-related
    taxes–tax avoidance becomes impossible because the sites are visible to all.

    3. Consumers pay less for their
    purchases due to lower production costs (see below). This creates greater
    satisfaction with the management of national affairs.

    4. The national economy
    stabilizes—it no longer experiences the 18 year business boom/bust cycle, due
    to periodic speculation in land values (see below).

    Six Aspects Affecting Land Owners:

    5. LVT is progressive–owners of
    the most potentially productive sites pay the most tax.

    6. The land owner pays his LVT regardless of how his site is used. A large
    proportion of the ground-rent from tenants becomes the LVT, with the result
    that land has less sales-value but a significant “rental”-value (even
    when it is not used).

    7. LVT stops speculation in land prices and
    the withholding of land from proper use is not worthwhile.

    8. The introduction of LVT initially reduces the sales price of sites, even
    though their rental value can still grow over a longer term. As more sites
    become available, the competition for them is less fierce.

    9. With LVT, land owners are unable to pass the tax on to their tenants as rent
    hikes, due to the reduced competition for access to the additional sites that
    come into use.

    10. With LVT, land prices will
    initially drop. Speculators in land values will want to foreclose on their
    mortgages and withdraw their money for reinvestment. Therefore LVT should be
    introduced gradually, to allow these speculators sufficient time to transfer
    their money to company-shares etc., and simultaneously to meet the increased
    demand for produce (see below).

    Three Aspects Regarding Communities:

    11. With LVT, there is an
    incentive to use land for production or residence, rather than it being unused.

    12. With LVT, greater working opportunities exist due to cheaper land and a
    greater number of available sites. Consumer goods become cheaper too, because
    entrepreneurs have less difficulty in starting-up their businesses and because
    they pay less ground-rent–demand grows, unemployment decreases.

    13. Investment money is withdrawn from land and placed in durable capital
    goods. This means more advances in technology and cheaper goods too.

    Four Aspects About Ethics:

    14. The collection of taxes from
    productive effort and commerce is socially unjust. LVT replaces this extortion
    by gathering the surplus rental income, which comes without any exertion from
    the land owner or by the banks–LVT is a natural system of national income-gathering.

    15. Bribery and corruption on information
    about land cease. Before, this was due
    to the leaking of news of municipal plans for housing and industrial
    development, causing shock-waves in local land prices (and municipal workers’ and
    lawyers’ bank balances).

    16. The improved use of the more
    central land reduces the environmental damage due to a) unused sites
    being dumping-grounds, and b) the smaller amount of fossil-fuel use, when
    traveling between home and workplace.

    17. Because the LVT eliminates
    the advantage that landlords currently hold over our society, LVT provides a
    greater equality of opportunity to earn a living. Entrepreneurs can operate in
    a natural way– to provide more jobs. Then earnings will correspond to the
    value that the labor puts into the product or service. Consequently, after LVT
    has been properly introduced it will eliminate poverty and improve business