Yesterday was Blog Action Day, on the subject of Poverty.

My contribution today is, unfortunately, more of a rant about the current financial crisis most affecting the affluent nations than a considered piece about those for whom the real meaning of poverty is whether or not they have access to clean drinking water.

My simple question is, where has all the money actually gone to?

Financial poverty – at any point on the scale – is basically a result of a lack of money. We are told the world financial system is on the point of collapse because, in various points in the system, ‘the money has run out’. The banking system is collapsing because the banks don’t have the money to lend to each other to enable them to balance their books at the end of every banking day (I won’t say working day, since the banks finish work at 3:30…), the housing market is collapsing because the price of housing has grown way beyond anybody’s means, the development market is collapsing – leaving city centres at risk of being pock-marked by stalled half-built structures – because businesses realise they can’t afford all this grade A1 office space being built (aside: nobody’s been building any grade B office space…), and the stock market is collapsing because… well, that’s an interesting question in itself – of all the financial markets in the system, the stock market has to be the most artificial of them all. And in the most bizarre outcome of all, every tax-paying adult citizen of Iceland technically owes the UK about £5,000 each as a result of the collapse of the Icelandic banking system collapse.

But it all boils down to the same thing – markets are collapsing because the people who buy things in them no longer have the money to give to the people who sell things in them.

But surely the money must be somewhere?

After all, the Earth’s financial system is a closed system – the money has hardly been spirited away to Mars, & it seems equally unlikely that financial institutions the world over have been re-enacting the K Foundation’s famous piece of performance art in their droves. So given the unlikeliness of both those possibilities, where is the money?

‘We are told’ the origin of the crisis lies with the number of mortgages in the USA given to people who in the normal banking system would never have been lent such huge sums of money on account of doubts about whether they would be able to afford to pay it back. But far from the altruistic piece of social engineering this sounds like, in actuality the interest rates on these mortgages are punitive – at around 12%, double that of standard mortgages. And when the borrower is unable to make the high monthly repayments on the loans, the borrowers, rather than lowering the interest rate to an affordable level, simply foreclosed, putting the borrower out on the street. In a market where prices were growing, this meant the lenders creamed even more money, because in effect they couldn’t lose – get stonking monthly payments for a while, then reposess & sell at a higher price to the next person who can’t afford it, ad infinitum. A strategy which – for the banks – worked fine until the level of reposessions caused a glut in the market meaning the resale values of these homes stopped rising, and instead started falling. And ‘we are told’, like the proverbial butterfly in thailand causing the tropical storm in bermuda, the ripples from this proceeded to bring everything else crashing down.

But what about in the UK?

Here our housing market has been manipulated in a different manner. In the olden days or the modern era, people either bought their own house (using money lent to them by a building society, which was essentially the local community bank – owned by the people who had accounts with it), or lived in accomodation rented from the council. Then all the council housing was sold off to the people living in it, but little new council housing was created to replace it – meaning a shortage of rented accomodation. So instead people who already had homes started buying second houses – pushing the price up artificially – in order to rent to the people who could no longer afford to buy a home (and could no longer rent council housing because there isn’t any any more), and having to charge much higher rents in order to keep up the repayments on not one, but two mortgages.

Now rents have become so high nobody can afford them any more, so there’s a glut of empty buy-to-let properties around which the buyers can’t afford to lower rents on (to enable people to move into them) because then they wouldn’t be able to afford the monthly repayments on their double mortgages; basically, they’ve been holding out in the hope that somebody might be able to afford the rent, rather than lowering and committing themselves to a loss-making rent. But as those borrowers failed to meet the repayments (due to unexpected interest rate rise as the banks needed to claw in more funds), they themselves found the banks foreclosing on them. The banks, in the meanwhile, had so run out of funds that they stopped trusting each other to pay back the bung of a couple of million they lent each other at the end of each banking day – meaning the entire system has ground to a halt.

In the meanwhile…

…governments across the world have been busy part-nationalising banks in an attempt to inject more capital – using our money, of course – into the system in order to get the banks to start lending to each other again and get everything moving again. The banks have taken our money, but failed to keep their side of the bargain – they’re still not lending to each other, meaning the financial system is still borked – and every hour of every day it remains borked makes it so much harder for a full and speedy recovery to take place.

So what’s happening ?

Just like the buy-to-let second-home-owners who have been holding out in the hope that somebody will come along who can afford to rent their property, the banks themselves are holding out in the hope that something better comes along, or rather that another fraction of a percent is shaved off the interbank lending interest rate, or that another bank will go to the wall in the meanwhile, meaning more goodies for those who are left.

In short, it’s just a giant global game of ‘hold-your-breath’, with the ones who breath first being declared the losers and the one who breathes last the winner.

So, coming back to the question – where’s all the money actually gone?

The crisis is entirely in the financial sector, and within that, predominantly in the banking sector.

For the most part, the shareholders don’t have the money. The banks themselves of course have some of the money, but only what’s left.

Could it be that the missing billions are actually in suitcases under the beds of the directors and chief executives, who over the years have paid themselves huge bonuses, salaries, and benefits out of the profits they have made from the reckless policies they’ve been adopting over the years, knowing exactly the risks they were taking with our money, and knowing full well that eventually the bubble was going to burst?

A handful of executives have lost their jobs over the affair – but have any of them had their multimillion pound homes reposessed and been forced to move into bed and breakfast accomodation (because, of course, there are no council homes to move them into)? Have they been, are they going to be, held accountable for the mess they’ve made in any real sense?

In the real olden days, we used to have revolutions over less.