The financial system is based more on confidence than ‘solid’ assets. Money itself is purely based on the confidence that if you accept a particular piece of paper in exchange for goods or services, you will be able to change it back again further down the line.So the current global crisis is not just about banks having lent unwisely and undermined their balance sheets in the process. That started it, but what it quickly became was the ‘credit crunch’, in which financial institutions no longer had confidence in one another, because they didn’t know each other’s exposure to this unwise lending…”<

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