(Click on the chart for a sharper image)
For almost two years, I have been raging about household debt. Then, I found this chart. It is from the Turner report; recently published by the FSA.
True, household and corporate sector debt has gone up as a proportion of GDP, but the increase is modest compared to the stratospheric jump in financial sector debt.
With breath-taking understatement, this is how the FSA described the situation:
Looking at total debt claims across the economy, we see some growth of household debt as a percent of GDP and a slightly smaller growth of corporate debt as a % of GDP, but what is striking is the extent to which the debt of financial companies has grown, both in the US and in the UK.
The Turner Report then adds two further observational gems:
1. On a consolidated basis – stripping out claims between financial institutions – financial sector assets and liabilities can only grow in line with non-financial sector liabilities and assets.
2. What this disproportionate growth of financial sector debt represents therefore, is an explosion of claims within the financial system, between banks and investment banks and hedge funds, i.e. the multiplication of balance sheets involved in the credit intermediation process.
The poorly written prose conceals an appalling fact; about half of all debt in the UK are claims between banks, investment banks and hedge funds. Securitization, CDOs, CLOs, MBS - the confusing acronyms of modern finance comes down to one frightening fact. The financial sector was lending money to itself, pulling out commissions and bonuses. Now, the system can not pay itself back.
After twenty years of humiliating the rest of us with their ostentatious lifestyles, these bankers have left the glass towers of the city and slimed their way down the river to Westminister. With lurid threats of a financial implosion, they demand that the rest of us cough up billions to maintain their coke fueled lifestyles.
For all practical purposes, the financial system now controls the Treasury and we are being forced to pay for the most outrageous fraud ever perpetrated in human history. What is worse, we are letting it happen.