Welcome to the world of money,
bread, cash, dosh,
dough, loot, lucre, moolah,
the readies, the wherewithal.
Call it what you like, money can break us or it can make us.
ln the past year, it's certainly broken
more than a few of the biggest names on Wall Street
and in the City of London.
And while former masters of the universe crash and burn,
the rest of us are left worrying if our savings would be safer in a mattress
than in a bank.
The great financiaI crisis that began in the summer of 2007
has most of us utterIy baffIed.
How on earth couId a IittIe IocaI difficuIty
with sub-prime mortgages in the United States
unIeash an economic tsunami big enough
to obIiterate some of WaII Street's most iIIustrious names,
to force nationaIisations of banks on both sides of the AtIantic
and to bring the entire worId economy to the very brink of recession,
if not downright depression?
ShouIdn't this series be caIIed The Descent Of Money?
WeII, I want to expIain to you just how money rose
to pIay such a terrifyingIy dominant roIe in aII our Iives.
What's more, l want to reveal financial history
as the essential back story behind all history.
Banks financed the Renaissance while the bond market decided wars.
Stock markets built empires...
..and monetary meltdowns made revolutions.
From Ancient Mesopotamia right down to present day London,
the ascent of money has been an indispensable part of the ascent of man.
But money's rise has never been a smooth, upward ride.
As we'II see, financiaI history has repeatedIy been interrupted
by gut-wrenching crises of which today's is just the Iatest.
From the fluctuating prices of the homes we own
to the high-speed industrialisation of China,
the power of finance is everywhere we look and it affects all of our lives.
SEAGULLS CRY
But are you in on the secret? Do you know what causes a bank run
or a monetary meItdown or a stock market crash?
Can you teII the difference between a sub-prime Ioan and a prime Ioan?
WeII, I think these financiaI technicaIities onIy reaIIy make sense
once you know where they came from.
And that's why financiaI history is of more than mereIy academic interest.
Not knowing this stuff can seriousIy damage your weaIth.
Crisis or no crisis, the amount of money sloshing around planet finance
still boggles the mind.
By one measure, the US stock of money is now $8, 7 00,000,000,000,
up 1 2% since last year.
And some people are still pocketing a huge share of that cash.
Last year, despite the onset of the biggest financial crisis
since the Depression, his hedge fund paid George Soros a cool $2.4 billion.
That's roughly 41,000 times more than the average American family earned.
As they say on Wall Street, ''Way to gol''.
Now, however, imagine a world with no money.
500 years ago, the most powerful society in South America,
the lnca Empire, had no real concept of money.
The lncas appreciated the aesthetic qualities of rare metals -
gold was the sweat of the sun, silver the tears of the moon -
labour was the unit of value in the lnca Empire,
just as it was later supposed to be in a communist society.
But in 1 532, the lncas ran into a man
whose hunger for money had led him across an ocean.
Francisco Pizarro and his fellow Conquistadores had come from Spain
to what they called Upper Peru inspired by the legend of El Dorado,
the realm of the gold-covered king.
After defeating the lnca army at the Battle of Cajamarca
their quest began in earnest.
At Potosi, in what is now Bolivia,
the Spaniards struck it rich.
They discovered the Cerro Rico, literally the Rich Hill.
Towering nearly 1 6,000 feet above sea level,
it was a money mountain.
In their 250 years of Spanish ruIe, more than two biIIion ounces of siIver
were extracted from mines Iike this one, 1 4,000 feet up in the Andes.
What the Incas couIdn't grasp was why the Europeans had such an insatiabIe Iust
for goId and siIver.
They couIdn't understand that to Pizarro and the Conquistadores,
siIver was much more than just shiny metaI.
It couId be made into money...
..a store of vaIue, a unit of account, portabIe power.
I must say, I find this pIace pretty harrowing.
The Spaniards had a system of forced Iabour
which meant that every abIe-bodied maIe in the native popuIation
had to do a stint down these mines.
And you can see why one in eight of them didn't survive the ordeaI.
Today, 500 years later,
conditions for miners in the Cerro Rico haven't improved much.
But at least they get paid for the work they do.
ln those days, it was a way of making money that verged on genocide.
The silver ore was ground up, refined with mercury
and then shipped to Europe as bars and coins.
Empire, it seemed, had made the Spanish crown rich beyond the dreams of avarice.
And yet, aII the siIver in the mines of Potosi
couIdn't haIt the inexorabIe economic and poIiticaI decIine of Spain's empire.
Why was that, when Pizarro seemed to have struck it so incredibIy rich?
The answer is that the Spaniards had dug up so much siIver
to finance their wars of conquest,
that the metaI itseIf suffered an extraordinary decIine in vaIue.
More siIver coins didn't make Spain richer.
They simpIy made prices higher as an increased quantity of money
chased the same amount of goods.
What the Spaniards didn't get
was that money is onIy worth what other peopIe wiII give in exchange for it.
And, whether money takes the form of silver coins,
seashells, bars of gold or bank notes,
that's been true from ancient times right down to the present day.
Even lumps of clay can work better than silver coins,
if people have enough confidence in them.
In Ancient Mesopotamia, nearIy 4,000 years ago,
peopIe used cIay tabIets Iike these ones
to commit themseIves to particuIar financiaI transactions.
For exampIe, this one, found a IittIe south-west of Baghdad,
specifies that a debtor wiII repay a Iender 330 measures of grain
on the harvest day. But this one's even more fascinating,
because what is says is that a debt of four measures of barIey
shouId be repaid to the bearer of the cIay tabIet
and it's that idea of repayment to the bearer that reaIIy fascinates me.
lf the phrase sounds familiar, then it should.
Just take a look at a £20 note.
Bank notes have next to no intrinsic worth.
They're simply promises to pay,
just like the clay tablets of ancient Babylon four millennia ago.
On the back of the $1 0 bill it says, ''ln God We Trust''.
But it's not really God you're trusting in.
By swapping your goods or your Iabour for a fistfuI of these things,
you're trusting the US Treasury Secretary not to repeat Spain's mistake
and produce so many of the damn things that by the time you come to spend them,
they're worth even Iess than the paper they're printed on.
Today we're quite happy with paper money.
Even more amazingly, we're happy with money we can't even see.
Millions of dollars pass through this woman's hands every day...
..or rather, across her computer screen.
She's a foreign exchange dealer,
whose business is literally buying and selling money.
Each day around $3 trillion changes hands
in transactions like these around the world.
And it's all built on trust. lt has to be when you can't even touch the stuff.
That's what the Conquistadores got wrong.
They failed to see that money is about trust - even faith.
Trust in the person paying you the money,
trust in the centraI bank issuing the money,
trust in the commerciaI bank that honours the cheque.
Money isn't metaI. It's trust inscribed.
And it doesn't much matter what it's inscribed on - paper, siIver, cIay,
or a screen - provided the recipient beIieves in it.
There was one huge possibility created
by the emergence of money as a system of mutual trust -
a possibility that would revolutionise world history.
lt was the idea that you could rely on people to borrow money from you
and pay it back at some future date.
That's why the root of ''credit'' is ''credo'', the Latin for ''I beIieve''.
Without the invention of credit,
the entire economic history of our world would have been impossible.
Because we take it for granted,
we tend to underestimate the extent to which our entire civiIisation is based on
the borrowing and Iending of money. No, it doesn't IiteraIIy make the worId go round.
But it does makes vast quantities of peopIe, goods and services
go around the worId from BabyIon to BoIivia.
The puzzle is that the early moneylenders got so little thanks for their services.
On the contrary, they were widely reviled as pariahs.
Why was that?
Welcome to Northern ltaly in the year 1 200AD.
A land divided into multiple feuding city states.
A land where trust was in rather short supply.
Among the many remnants of the defunct Roman Empire was a numerical system
singularly ill-suited to complex mathematical calculation,
let alone the needs of commerce.
Nowhere was this more of a handicap than in Pisa,
where merchants struggled to do business
with seven different forms of coinage in circulation.
Even the simplest transaction could be a headache, requiring the use of an abacus.
By comparison, economic life in the Eastern world -
in the Muslim caliphate or the Sung Chinese Empire - was far more advanced.
To discover modern finance, backward Europe needed to import it.
Enter a young mathematician called Leonardo of Pisa or Fibonacci.
The son of a Pisan customs official based in what is now Algeria,
Fibonacci is best remembered today
for his sequence of numbers that mimic the properties of nature.
But the famous sequence was onIy one of many Eastern mathematicaI ideas
that Fibonacci introduced to Europe with his path-breaking book the Liber Abaci -
The Book of Calculation.
Even more important was his demonstration of the superiority of Arabic numerals
over Roman numerals.
And crucially, nearly all Fibonacci's examples related to business.
Since Roman times,
Europeans had been struggling to do simple arithmetic with these...
The Hindu or Arabic numerals made all kinds of calculation easier.
ln particular, Fibonacci showed how the new methods of calculation
could be applied to commercial bookkeeping, to currency conversions
and, crucially, to the computation of interest.
Just imagine trying to work out percentages in Roman numerals.
Fibonacci's Liber Abaci made it child's play.
This was to be the appIication of mathematics to making money.
The most fertile soil for such financial seeds
proved to be the ltalian city states.
Fibonacci's home town of Pisa was one.
But it was above all Venice -
more exposed than any of the others to Oriental influences -
that became the great money-lending laboratory...
..and the home of literature's most notorious moneylender -
Shylock, in William Shakespeare's The Merchant of Venice.
May you stead me? WiII you pIeasure me?
ShaII I know your answer?
CruciaIIy, ShyIock's onIy prepared to Iend the money if Bassanio's friend,
the merchant Antonio, is providing the security.
Three thousand ducats for three months and Antonio bound.
Your answer to that.
Antonio is a good man.
By ''good'', ShyIock doesn't mean virtuous,
he means ''good'' for the money he's about to Iend Bassanio.
In other words, creditworthy.
Have you heard any imputation to the contrary?
Oh, no, no, no, no. My reason in saying that he's a good man
is to have you understand me that he is sufficient.
(ShyIock) Three thousand ducats. I think I may take his bond.
With any loan, things can go wrong.
Ships can sink. And that is precisely why anyone who lends money to a merchant -
if only for the duration of an ocean voyage - needs to be compensated.
We usually call the compensation ''interest'' -
the amount paid to the lender over and above the sum lent or ''principal''.
Overseas trade of the sort that Venice depended on
couldn't operate without such transactions.
And they remain the foundation of international trade to this day.
But why does Shylock turn out to be such a villain,
demanding literally ''a pound of flesh'' - in effect Antonio's death -
if he can't fulfil his obligations? Why is Shakespeare's moneylender so heartless -
the original of that bloodsucking financier
who recurs time and again in Western literature?
One clue is that Shylock is one of the many Jewish moneylenders in history.
Jews who stayed in Venice for more than two weeks
were supposed to wear a yellow ''O'' on their backs or a yellow hat.
And they were confined to a special area which became known as the Ghetto Nuovo.
This is the entrance to the Jewish ghetto in Venice where Jews were obIiged to Iive
and indeed confined at night. Jews were toIerated in Venice, but for a reason.
The key was that Jews could provide a service that Christian merchants
were forbidden to do - they could charge interest on their loans.
Fibonacci might have figured out the mathematics of lending,
but it took Shylock to do the deal.
This is where the Venetian Jews used to do business.
This buiIding here was the oId Banco Rosso
and it was outside here that they used to sit behind their tabIes - their tavoIe -
on their benches - their banchi, the root of the ItaIian word for banks.
Now, there was good reason why merchants came here to the Jewish ghetto
to borrow money. For Christians, what the Jews were doing,
Iending money at interest, was a sin.
The medieval Church's laws against usury - charging interest on loans -
were a major obstacle to the development of finance in Europe.
After all, what God-fearing Christian merchant
wished to risk the torments of Hell?
This astonishing vision of eternaI damnation
was painted by Giorgio Vasari and Federico Zuccari
on the inside of the great dome of FIorence's CathedraI, the Duomo.
And beIow there's another fresco by Domenico di MicheIino
of FIorence's greatest poet, Dante AIighieri,
hoIding his masterwork, the Divine Comedy.
According to Dante, there was a speciaI part of the seventh circIe of HeII
that was excIusiveIy set aside for usurers.
There the moneylenders were eternally tortured with scorching earth
and freezing snow, their necks weighed down with bulging purses.
Jews, too, weren't supposed to Iend at interest.
But there was a convenient get-out cIause
in the OId Testament book of Deuteronomy, chapter 23,
you weren't supposed to Iend to your brother at interest, but to a stranger?
WeII, that was a different matter. In other words, a Jew couIdn't Iend to a Jew,
but he couId Iend to a Christian.
The price the Jews paid for performing this service was social exclusion.
Hence the ghetto.
And hence the centuries-long association between Jews and finance,
one of the few forms of economic activity from which Jews were not once excluded.
ln the end, of course, Shylock is thwarted.
For although the court recognises his right to a pound of flesh,
the law also prohibits him from shedding Antonio's blood.
And, because he's a Jew, the law also requires the loss of his goods and life
for so much as plotting the death of a Christian.
He only escapes by submitting to baptism.
lt turns out to be a risky business to be a moneylender.
The Merchant of Venice raises profound questions
about both economics and anti-Semitism.
Why don't debtors aIways defauIt on their debts -
especiaIIy when the creditors beIong to unpopuIar ethnic minorities?
Why don't the ShyIocks aIways Iose out?
To get a better idea of how primitive moneyIending works,
you don't need to traveI back in time.
There are pIenty of modern-day ShyIocks remarkabIy cIose to home.
And they don't need to be Jewish to suffer a simiIar fate to ShyIock.
This is ShettIeston in the East End of GIasgow.
It's actuaIIy where my grandmother used to Iive.
And I think with its distinctive steeI shuttering,
it's one of the grimmest pIaces in the whoIe of Western Europe.
In fact, average maIe Iife expectancy here is just 64,
which is sIightIy worse than BangIadesh.
That means that the average ShettIestonian doesn't actuaIIy Iive Iong enough
to coIIect his state pension.
You might think nobody wouId be mad enough
to try and provide financiaI services here. But someone does.
That someone is a loan shark.
You give him your benefit card as security and he gives you a loan.
On the day your benefit arrives, he gives you back the card
and you go to the post office to get your money,
repaying him the interest. lt's a modern version of Shylock's business model.
Usury is alive and well and living in Scotland.
These are some pages from the Ioan book of a GIasgow Ioan shark.
And it's kind of interesting to see how the business modeI works.
You Iend out maybe £10 to someone
and you expect to be paid back £12.50 at the end of the week.
Now that's 25% a week, but if you work that out at an annuaI rate
it comes to 1 1 miIIion per cent.
So why do people scraping by on just £5.90 a day
pay such horrendous interest on loans?
These, surely, are loans you'd be mad not to default on.
But here in Glasgow, defaulting on your loan is highly inadvisable.
You won't literally lose a pound of flesh,
but grievous bodily harm isn't an unknown consequence
of letting down the loan shark.
Quite simply, individual loan sharks have to be rapacious and ruthless
because the costs to them of even a single defaulter are so high.
And that explains why, from Renaissance ltaly to modern Scotland,
the moneylender is so often a hated figure.
He's providing a service, but at a socially unacceptable price.
So how did Ienders Iearn to overcome this fundamentaI probIem?
If they were too generous, they didn't make any money,
but if they were too hard-nosed, borrowers wouId eventuaIIy defauIt.
The answer was to get bigger and more powerfuI. It was time to invent banks.
ln 1 5th century ltaly, the key financial service of providing credit
moved out of the ghetto to become the legitimate preserve of banks.
This transition was symbolised by the rise of one family - the Medici.
With their ascent, credit came of age.
Moneylending ceased to be disreputable.
lt became glorious - and the foundation of a new kind of power.
The dazzling legacy of the Medici family's power
still surrounds you in Florence today.
In the space of 400 years, two Medici became Queens of France,
three became Pope.
AppropriateIy, it was MachiaveIIi, the supreme theorist of power,
who wrote their history.
Perhaps no other family left such an imprint on an age
as the Medici left on the Renaissance.
You might even say that they paid for the Renaissance,
their patronage running the gamut of genius from Michelangelo to Galileo.
And this, in the Uffizi GaIIery, is the Medici's private art coIIection,
one of the most spectacuIar ever assembIed.
What the millions of tourists who flock here generally forget to ask
is how the Medici paid for all this.
The simpIe answer is that they were foreign exchange deaIers,
members of the Arte de Cambio - the money changers' guiId - who made it big.
They were known as banchieri or tavoIieri because, Iike the Jews of Venice,
they IiteraIIy did their business sitting on benches behind tabIes.
Indeed, the originaI Medici bank - or bench -
was Iocated right here in the Via deII'Arte deIIa Lana - WooI GuiId Street.
Prior to the 1 390s, the Medici were Florence's answer to the Sopranos -
a small-time clan notable more for low violence than for high finance.
ln a 1 7-year period, no fewer than five Medici were sentenced to death
by the criminal courts for capital crimes.
Then came Giovanni di Bicci de' Medici.
lt was his aim to make the Medici totally legitimate.
Part of the secret of his success was an ingenious bit of creative accounting
that got the Medici off the hook of the anti-usury laws.
These Iedgers of the Medici bank make it cIear
how important commerciaI biIIs for financing foreign trade were to the bank.
True, the Church prohibited the coIIection of interest on Ioans.
But there was nothing to prevent a shrewd trader
from making money on transactions Iike these, which invoIved muItipIe currencies.
There was no interest, and therefore no sin,
simply a commission deducted for the conversion of one currency into another.
lf money was advanced to a particular trader for any length of time,
the commission was that bit larger.
ln the same way, depositors who put their money in the Medici bank
were given 'discrezione' to compensate them for risking their money.
This was credit, in other words,
but with the interest payments discreetly concealed.
Now, for the first time, moneylending had evolved into banking.
The reaI story of the success of the Medici bank
can be found here in the Libro Segreto - the Secret Book -
of Giovanni di Bicci de' Medici. The key was not so much size as diversification.
EarIier ItaIian banks had been monoIithic
and very vuInerabIe to defauIt by a singIe bad borrower.
But the Medici bank was made up of muItipIe interIocking partnerships,
each in some measure independent of the rest.
It was this decentraIisation that was the key to their astonishing profits.
Under Giovanni's guidance,
the Medici banking network extended from Florence, to Venice, to Rome.
The scale and diversity of the Medici's operations
was the key to reducing the risks of moneylending,
and therefore also the costs to borrowers.
That's the essential difference between loan sharks and banks -
between Shylock and the Medici.
And here's the proof that it worked.
Page after page of Giovanni's assets, decIared for tax purposes
and cuIminating in the grand totaI of 91 ,089 fIorins. In those days
that was serious money.
When Giovanni died in 1 429,
his last words were an exhortation to his heirs
to maintain his standards of financial acumen.
His funeral was attended by 26 men of the name Medici,
all paying homage to the man who had made the business of banking respectable -
and profitable - as it had never been before.
For his son Cosimo, the accumulation of wealth combined seamlessly
with the accumulation of power.
Within 20 years of his father's death,
Cosimo de' Medici was the Florentine State.
As the Pope himself put it - ''Political questions are settled at his house.
''The man he chooses holds office.
''He it is who decides peace and war and controls the laws.
''He is King in everything but name. ''
This BotticeIIi is mainIy famous for the beauty of its young subject.
But it's actuaIIy intended as a tribute to a dead banker, Cosimo de' Medici.
That's him there on the medaIIion,
and you can just make out the inscription Pater Patriae -
the father of his country.
ln 1 50 years, the Medici had transformed themselves from backstreet moneylenders
to the most powerful financial force in Europe.
But it's this painting, BotticeIIi's Adorazione dei Magi,
which more than any other captures the transfiguration of finance
the Medici had achieved.
On cIose inspection, the three wise men are Cosimo de' Medici,
washing the feet of Christ, and his sons Piero and Giovanni.
The young man on the Ieft is Lorenzo.
The painting had been commissioned by the head of the Bankers' GuiId
as a tribute to the famiIy.
Perhaps it shouId reaIIy have been caIIed The Adoration of the Medici.
Having once been damned, bankers were now cIose to divinity.
Nothing could better illustrate the extraordinary ascent of money.
For what the Medici had achieved
was nothing less than the birth of modern banking.
Others had tried before,
but the Medici were the first bankers to hit the poIiticaI big time.
And they did it by Iearning one cruciaI Iesson -
in finance, smaII is seIdom beautifuI.
By making their bank bigger and more diversified,
the Medici had found a way of spreading their risks.
And by focusing on currency trading rather than just Iending,
they'd reduced their exposure to defauIts by borrowers.
For Cosimo and his famiIy, it was a truIy beautifuI business modeI.
Yet not even the Medici were invulnerable.
The bank suffered heavy losses
as a result of over-generous loans to blue-blooded debtors
who felt no compunction about defaulting on their obligations
and telling the bankers to get lost.
Bad debts - money owed by borrowers who go bust -
are the perennial problem that any bank confronts.
Yet for a time, it seemed as if modern bankers had solved this age-old problem.
They really thought they were smarter than the Medici.
Memphis, Tennessee is a long way from Florence.
And the world economy has come a long way since the Renaissance.
A crucial part in that transformation
has been played by the spread of modern banking from its ltalian birthplace
to a country where money has increasingly taken the form of easy credit.
The United States has been built on borrowed money.
But whereas the Medici tended to lend only to the relatively well off,
until the present credit crunch at least, American banks seemed willing to give
just about anyone a loan.
Memphis is famous for blue suede shoes, barbecued ribs and bankruptcies.
You can tell people here are a little... How shall l say it? ..a little sub-prime.
You onIy need to Iook at the shopping maII for the seriousIy poor.
And the ubiquitous no-friIIs eatery.
Then there's a tax advisor who can teII you how to cIaim your Iow-income credits.
A shop where you can borrow money on the equity you own in your car.
And a pIace where they'II give you an advance on next week's pay cheque...
..not to mention a pawn shop the size of a department store.
And finaIIy, when you've no possessions Ieft to pawn or to seII,
there's just one option Ieft.
And that's to head on down to ZLB PIasma
where you can seII your own bIood for $25 doIIars a pop.
TaIk about being ''bIed dry''. It's amazing reaIIy -
an entire economic sector based on peopIe who are broke.
ln some ways, it rather reminds me of the East End of Glasgow.
Yet there's a world of difference between this world
and the world where loan sharks extract their pounds of flesh
from petty defaulters.
Here in sub-prime America, defaulting on your debts is easy.
Well, pretty easy.
This is Richie. He's in the repo business -
snatching cars from under their owners' noses
when they haven't made their payments.
He grabbed that boIt action, he went ''chh'' and I watched the rifIe sheII
go in the barreI and he Iunged it towards me and hit me right here
and aImost knocked me down.
He said, ''Either you drop the truck or I'm dropping you.''
And I said, ''Yes, sir,'' and I dropped the truck.
You know, you make it sound so attractive, maybe I... I shouId switch jobs!
I teII you what, it's interesting.
ln the bankruptcy capital of America, repossessing cars is a routine matter.
BUZZ OF AUCTION ROOM
$16,000...
It's got the Ieather, the top...
Each week, United Auto Recoveries sells 500 repossessed cars.
The cars are auctioned off to the trade, ending up in the same car lots,
to be sold to much the same people
and, when they can't keep up with their monthly payments,
repo'd and recycled once again.
TechnicaIIy the Memphis repo men are simpIy doing what debt coIIectors do
the worId over.
The difference, apart from the sheer mind-boggIing scaIe of the thing,
is the reIative ease with which the bad debts are wound up
and the coIIateraI is soId off. For the debtors,
there's virtuaIIy no sociaI stigma and nobody seems to be getting hurt.
The big mystery is why the worId's most successfuI capitaIist economy
is based on a foundation of more or Iess painIess economic faiIure.
Here in Tennessee, when the house has been stripped bare
and the repo man has taken your car,
you end up in the hands of one of Memphis's bankruptcy lawyers,
along with around 1 3,000 other people
who filed for bankruptcy here in the past year.
Of course that's one thing that's making you... Bumping your payments up so high.
Every week, bankrupts gather here with their lawyers
to hammer out deals with their creditors. There's even a fast track lane.
In this case it's a mortgage and it's a car, or two cars.
I can't see anything eIse in there that they're...they're having to pay off.
- ActuaIIy there are three cars. - Three cars?
The third car is... the neighbourhood titIe Ioans,
has a... has a Iien on the car, they are hoIding the titIe.
(NiaII) So putting this reaIIy simpIy,
what were they supposed to be paying and what are they now paying?
WeII, that payment was reduced from 241 . 1 1 ...
- down to 107. - OK.
Quite an improvement.
Cutting their monthIy obIigations by more than haIf.
From 1 996 to 2006 there were between one and two million bankruptcy cases a year
in the United States, nearly all of them involving individuals
who elected to go bust rather than meet their obligations.
ln medieval ltaly - or in the Glasgow of my youth, for that matter -
bankruptcy was seen as a disaster. But not here.
In fact, this abiIity to waIk away unscathed from unsustainabIe debt
and start again has been a defining characteristic of American capitaIism.
There were no debtors' prisons here in the earIy 1800s,
at a time when EngIish debtors couId Ianguish in jaiI for years. Since 1898,
every American has been entitIed to fiIe for Chapter 7 - Iiquidation,
or Chapter 13 - voIuntary personaI reorganisation.
For rich and poor aIike,
bankruptcy has become as much of an inaIienabIe right
as ''Iife, Iiberty and the pursuit of happiness''.
The theory is that American law exists to encourage entrepreneurship -
to facilitate the creation of new businesses.
And that means giving people a break when things don't work out the first time,
or even the second time.
The born risk-takers don't get wiped out as they learn through trial and error
how to make that first million,
because today's bankrupt might be tomorrow's billionaire.
lt's a theory that seems to work.
Many of America's greatest successes failed in their early endeavours,
including the author Mark Twain,
the comedian Buster Keaton,
and none other than the great industrialist Henry Ford himself.
All of these men eventually flourished
not least because they were given a chance to try, fail and start over.
For their part, the banks simply assume
that a proportion of the loans they make will go bad.
After all, most people going bankrupt owe relatively trivial sums.
A Chapter 1 3 doesn't wipe their debts out, it just reschedules them.
So it's a mistake to think, as Shakespeare's Antonio did,
of moneylenders as mere leeches,
sucking the life's blood out of unfortunate debtors.
Credit and debt are the building blocks of economic development.
But it takes banks to elevate that relationship
beyond the tie between a loan shark and his hapless victim.
It's onIy when borrowers Iike the ones on this GIasgow housing estate
have access to efficient credit markets
that they can escape the cIutches of the ShyIocks and the Ioan sharks.
It's onIy when savers can put their money in dependabIe banks
that it can be channeIIed from the idIe to the industrious.
But wait, l hear you ask, if banks are the answer,
how could so many have collapsed so spectacularly in the past year,
throwing the financial world into turmoil?
To understand why bad debts in places like Memphis
could cause such chaos, you need to understand
how the relationship between banks and borrowers broke down
as loans came to be ''securitised'' and sold on to unwary investors.
Once upon a time, being a banker was reaIIy rather boring.
You Iived by the 3-6-3 ruIe,
which meant you paid 3% on deposits, coIIected 6% on Ioans
and were on the goIf course by 3 o'cIock.
But in our time, banking became reaIIy rather too interesting.
A whoIe series of financiaI innovations
made it possibIe for common or garden Ioans
to poor foIks in pIaces Iike Memphis
to metamorphose into weird and wonderfuI things
with names Iike ''coIIateraIised debt obIigations''.
WeII, this financiaI aIchemy - turning Iead into goId
or toxic waste into giIt-edged securities -
was onIy possibIe because the ascent of banks
was foIIowed by the ascent of the second great piIIar
of the modern financiaI system - the bond market.
And for an expIanation of how that came about, we'II turn to Mr Bond himseIf.