Is the credit crunch proof that financial self regulation doesn't work?

Question

years ago I recall credit card limits were tiny and getting credit needed the deposit of small children in bank vaults as security and the security of grannys bungalow as a back up in case of default. Nowadays anyone can get a £2k limit credit card thrown at them

Any thoughts?

Answer 1

hmm partly - because banks, retail banks at least, know they are soo important to the economy that even if they did face runs they would be bailed out by the gov't at least in developed countries!

then again,,in the process they do face massive losses..so that isn't really motivation to be reckless..

i thought gordon brown introduced a regulator? but they were financed by the commercial banks or something so probably had a vested interest..

i saw dispatces documentry that blames the large bonus system within the finance industry for lots of short-sighted, risky investments..i think it was abit biased though becaused the bonuses aren't paid out for the investments they make but for the amount of effort they put in. so many workers in the city do like 12 14 16 hour days..its madness!!!

its just the economic cycle though isnt it?booms and busts..it had to be something..and probably alot of small factors added up to lead to the credit crunch..good timing though phstt!! im going to be a first time buyer soon..not good!! hopefully though i'll have a decent enough deposit saved up..

Answer 2

I don't think so. Due to inflation what is 2k pounds now compared to those old days. The credit crunch now is because banks are selective and careful in lending their money.But their business is lending so its better for them to lend small amounts to more people. Where the risks are less. Just like economies of scale.The current mortgage crisis has shown us that big Investment banks and Mortgage companies losses are in hundreds of billions.