We're still paying for the banks' mistakes

It was the image that haunted Britain’s bankers. Queues of people lining up outside Northern Rock, triggering the collapse of the 150-year-old bank.

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For the UK, that image came to symbolise the world’s biggest financial crisis, the cause of a major recession in the US and Europe.

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There had been warning signs before the run on Northern Rock. Commentators blamed much of the bank’s troubles on its board. However, underlying its woes were problems in the international financial system. These snowballed in the following months. Among the most acute were failures of finance for low-cost housing in the USA. The inter-relatedness of global finance meant that problems there quickly infected the rest of the world.

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A year later, Lehman Brothers, one of the world’s oldest and most respected financial institutions, went bankrupt with debts of $613 billion – about the same as the entire gross domestic product of a smaller European country. Dramatic TV footage showed city workers pouring out of Lehman Brothers’ offices in London’s iconic Canary Wharf building.

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The causes of the crash were complex. However, the finger of blame was pointed at individual bankers who struck high risk deals using complex financial instruments. These included the collateralised debt obligations, known as CDOs, CDOs-squared, synthetic CDOs referred to by Dominic and Isla in “She, You, I.” It wasn't clear if even the bankers understood them.

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Below is a link to a TV report of the dramatic collapse of Northern Rock - that Julia would have watched with Maisie.