Saturday, 15 September 2007
It's like that scene from "It's a Wonderful Life"
"I've never seen one of those before, but it has all the look of a run on the bank"
I have never seen one either. And never thought I would. Not only did I once work for banks, but one of the compulsory courses I took in Economics was "Money and Banking". And one of the key "take home" messages was how to retain confidence in the banking system, as ordinary people simply do not believe how banking works, and when it is explained to them react the same way as when you explain a simple magic trick to a child. We need to believe and have faith - and most of the time we do. But all it takes it seems is the spread of a rumour. Or in this case the unease of the US secondary mortgage market and the speed with which information (and misinformation) can now be transmitted.
This seems to me more like collective hysteria. The probability that in reality people will lose their savings is so remote that it is hard to measure. But restoring confidence in a market that is spooked is going to be difficult. And this could be the start of a mentality that leads to widespread economic disruption.
In the movie it was Jimmy Stewart. In the thirties it was FDR "we have nothing to fear but fear itself". But we have known for a long time that the property markets have been spiralling upward in an unsustainable fashion. All we can hope for now is a softer landing. But I do not see the simpering chimp restoring confidence.
UPDATE - I have subsequently stumbledupon an article which seems to explain what happened