Understanding the banking collapse

‘The crisis that came about was the fault of everybody.’

Was London banker Nicola Horlick right to say this? Draw your own conclusions from this learning pathway, which lays out the factors that contributed to the catastrophic collapse of the world’s banks, resulting in a ‘credit crunch’ of global proportions.

No prior knowledge of economics is required to follow this analysis of how the credit boom years freed up wealth as banks boosted profits through a doomed trade in so-called toxic assets.

Understand what securitisation means, and how the failure of the sub-prime mortgage market was instrumental in triggering a domino effect that saw once-mighty institutions fall – from Northern Rock and HSBOS to Bear Stearns and Lehman Brothers.

As the casualty list mounted, what was done to try to put things right? What role did governments and regulatory agencies play, and what could – or should – they be doing now to stabilise the financial sector? An examination of the history of bubble economics – from the South Sea Bubble of the 18th Century to the Dot-com Crash of the 1990’s – suggests boom and bust cycles are inevitable and even have benefits but analysis of disasters past and current stock market research also points to a contributing factor that may prove very resistant to regulation: human emotion.