All language subtitles for The.Ascent.of.Money.2008.S01E01.1080p.BluRay.REMUX.AVC.DD2.0-Asmo_track3_[eng]-eng

Welcome to the world of money.

Bread, cash, dosh, dough...

loot, lucre, moolah, the
readies, the wherewithal.

Call it what you like:

money can brake
us or it can make us.

In the past year
it's certainly...

broken more than a few of
the biggest names in Wall Street

and 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 financial crisis that
began in the summer of 2007

has most of us utterly baffled.

How on earth could
a little local difficulty

with sub-prime mortgages
in the United States

unleash an economic
tsunami big enough

to wipe out some of Wall
Street's most illustrious names,

to force nationalization of
banks on both sides of the Atlantic

and to bring the
entire world economy

to the very brink of recession,

if not downright depression?

Shouldn't this series be
called the Descent of Money?

Well, I want to
explain to you...

just how money rose to play
such a terrifyingly dominant role...

in all our lives.

What's more, I 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,

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'll see...

financial history has
repeatedly been interrupted...

by gut-wrenching crisis,

of which today's
is just the latest.

From the fluctuating prices
of the homes we own...

to the high-speed
industrialization of China,

the power of finance
is everywhere we look

and it affects all of our lives.

But are you in on the secret?

Do you know what causes a
bank run or a monetary meltdown...

or a stock market crash?

Can you tell the difference between
a sub-prime loan and a prime loan?

Well, I think these financial
technicalities only make sense...

once you know
where they came from.

And that's why financial history
is of more than academic interest.

Not knowing this stuff can
seriously damage your wealth.

Crisis or no crisis,

the amount of money sloshing
around Planet Finance...

still boggles the mind.

By one measure, the
U.S. stock of money...

is now $8.7 trillion, up
12 per cent 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
thousand times more...

than the average
American family earned.

As they say in Wall
Street: Way to go.

Imagine a world with no money.

Five hundred years ago,

the most powerful
society in South America,

the Inca Empire, had
no real concept of money.

The Incas 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 Inca Empire,

just as it was later supposed
to be in a Communist society.

But in 1532, the
Incas ran into a man...

whose hunger for money
had led him across an ocean.

Francisco Pizarro and his
fellows 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 Inca 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 16,000
feet above sea level,

it was a money mountain.

In the 250 years
of Spanish rule,

more than two billion
ounces of silver...

were extracted from
mines like this one,

14,000 feet up in the Andes.

What the Incas couldn't
grasp was why the Europeans...

had such an insatiable
lust for gold and silver.

They couldn't understand that to
Pizarro and the Conquistadores,

silver was much more
than just shiny metal.

It could be made into money.

A store of value.

A unit of account.
Portable power.

I must say I find this
place pretty harrowing.

The Spaniards had a
system of forced labour,

which meant that every
able-bodied male...

in the native population...

had to do a stint
down these mines.

And you can see why
one in eight of them...

didn't survive the ordeal.

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.

In 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 all the silver
in the mines of Potosi...

couldn't halt the
inexorable economic...

and political decline
of Spain's empire.

Why was that,

when Pizarro seemed to
have struck it so incredibly rich?

The answer is that the Spaniards
had dug up so much silver...

to finance their
wars of conquest...

that the metal itself suffered
an extraordinary decline in value.

More silver coins
didn't make Spain richer.

They simply 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 only worth...

what other people will
give in exchange for it.

And whether money takes
the form of silver coins,

sea-shells, bars of
gold or banknotes,

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,
nearly four thousand years ago,

people used clay
tablets like these ones...

to commit themselves to
particular financial transactions.

For example, this one found
a little southwest of Baghdad...

specifies that a debtor
will repay a lender...

330 measures of grain
on the harvest day.

But this one's even
more fascinating.

Because that is says...

is that a debt of four measures
of barley should be repaid...

to the bearer of
the clay tablet.

And it's that idea of
repayment to the bearer...

that really fascinates me.

If the phrase sounds
familiar, then it should.

Just take a look at a £20 note.

Banknotes have next
to no intrinsic worth.

They are simply promises to pay,

just like the clay tablets
of ancient Babylon...

four millennia ago.

On the back of the
ten-dollar bill it says:

"In God We Trust".

But it's not really
God you're trusting in.

By swapping your
goods or your labour...

for a fistful 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 less 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
dollars changes hands...

in transactions like
these around the world.

And it's all built on trust.

It 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 all about trust...

even faith.

Trust in the person
paying you the money.

Trust in the central
bank issuing the money,

trust in the commercial
bank that honours the cheque.

Money isn't metal.
It's trust inscribed.

And it doesn't much
matter what it's inscribed on:

paper, silver, clay
or on a screen...

provided the
recipient believes in it.

There was one huge
possibility created...

by the emergence of money
as a system of mutual trust...

a possibility that would
revolutionize world history.

It 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 believe".

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
civilization is based...

on the borrowing
and lending of money.

No, it doesn't literally
make the world go round.

But it does makes vast
quantities of people,

goods and services
go round the world...

from Babylon to Bolivia.

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
Italy in the year 1200 A.D.

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 local 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 only one of many
Eastern mathematical 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.

In particular, Fibonacci showed

how the new methods
of calculation...

could be applied to
commercial bookkeeping,

to currency con versions...

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
application of mathematics...

to making money.

The most fertile soil for
such financial seeds...

proved to be the
Italian 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?
Will you pleasure me?

Shall I know your answer?

Crucially, Shylock's only
prepared to lend 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", Shylock
doesn't mean virtuous,

he means "good" for the money
he's about to lend 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.

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...

couldnt 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 fulfill
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
obliged to live...

and indeed confined at night.

Jews were tolerated 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 building here was
the old Banco Rosso...

and it was outside here
that they used to sit...

behind their
tables, their tavule...

on their benches, their banci,

the root of the
Italian word for banks.

Now, there was good reason
why the merchants came here...

to the Jewish ghetto
to borrow money.

For Christians, what
the Jews were doing,

lending 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 eternal damnation...

was painted by Giorgio
Vasari and Federico Zuccari...

on the inside of the great
dome of Florence's Cathedral...

the Duomo.

And below there's another
fresco by Domenico di Michelino...

of Florence's greatest
poet, Dante Alighieri,

holding his masterwork,
the "Divine Comedy".

According to Dante,

there was a special part of
the seventh circle of Hell...

that was exclusively
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 lend at interest.

But there was a
convenient get-out clause...

in the Old Testament book
of Deuteronomy, chapter 23:

You weren't supposed to
lend to your brother at interest,

but to a stranger? Well,
that was a different matter.

In other words, a Jew
couldn't lend to a Jew,

but he could lend
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.

In the end, of course,
Shylock is thwarted.

For although the court recognizes
his right to a pound of flesh,

the law also prohibits him
from shedding Antonio's blood.

And, because he is 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.

It 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 always
default on their debts...

especially when the creditors
belong to unpopular ethnic minorities?

Why don't the Shylocks
always lose out?

To get a better idea of how
primitive money-lending works,

you don't need to
travel back in time.

There are plenty of modern-day
Shylocks remarkably close to home.

And they don't
need to be Jewish...

to suffer a similar
fate to Shylock.

This is Shettleston in
the East End of Glasgow.

It's actually where my
grandmother used to live.

And I think with its
distinctive steel shuttering,

it's one of the grimmest places
in the whole of Western Europe.

In fact, average male
life expectancy here is 64,

which is slightly
worse than Bangladesh.

That means that the
average Shettlestonian...

doesn't actually live long
enough to collect his state pension.

You might think nobody
would be mad enough...

to try and provide
financial 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.

It's a modern version of
Shylock's business model.

Usury is alive and well
and living in Scotland.

These are some pages...

from the loan book of
a Glasgow loan shark.

And it's kind of interesting to
see how the business model works.

You lend 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 annual rate...

it comes to 11 million 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
Italy 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 lenders learn to
overcome this fundamental problem?

If they were too generous,
they didn't make any money;

but if they were too hard-nosed,
borrowers would eventually default.

The answer was to get
bigger and more powerful.

It was time to invent banks.

In fifteenth-century Italy
the key financial service

of providing credit
moved out of the ghetto

to become the legitimate
preserve of banks.

This transition was symbolized
by the rise of one family:

the Medici.

With their ascent,
credit came of age.

Money-lending ceased
to be disreputable.

It 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
four hundred years,

two Medici became
queens of France;

three became Pope.

Appropriately, it
was Machiavelli,

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 gallery,

is the Medici's
private art collection,

one of the most
spectacular ever assembled.

What the millions of
tourists who flock here...

generally forget to ask is
how the Medici paid for all this.

The simple answer is that they
were foreign exchange dealers

members of the
Arte del Cambio...

the Money-changers' Guild...

who made it big.

They were known as
banchieri or tavolieri...

because, like the
Jews of Venice,

they literally did their business
sitting on benches behind tables.

Indeed, the original
Medici bank or bench...

was located right here in
the Via del' Arte della Lana...

wool guild street.

Prior to the 1390s...

the Medici were Florence's
answer to the Sopranos:

a small-time clan notable
more for low violence...

than for high finance.

In a 17-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.

It 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 ledgers of
the Medici Bank...

make it clear how
important commercial bills...

for financing foreign
trade were to the bank.

True, the Church prohibited
the collection of interest on loans.

But there was nothing to
prevent a shrewd trader...

from making money on
transactions like these,

which involved
multiple currencies.

There was no interest,
and therefore no sin,

simply a commission...

deducted for the conversion
of one currency into another.

If money was advanced
to a particular trader...

for any length of time,

the commission
was that bit larger.

In 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 real 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.

Earlier Italian banks
had been monolithic...

and very vulnerable to default
by a single bad borrower.

But the Medici
bank was made up...

of multiple interlocking
partnerships,

each in some measure
independent of the rest.

It was this decentralization
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 money-lending,

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,

declared for tax purposes.

And culminating in the
grand total of 91,089 florins.

In those days, that
was serious money.

When Giovanni died in 1429...

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 Botticelli is mainly famous
for the beauty of its young subject.

But it's actually intended
as a tribute to a dead banker,

Cosimo de' Medici.

That's him there
on the medallion,

and you can just make
out the inscription...

pater patriae, the
"father of his country".

In 150 years,

the Medici had
transformed themselves...

from back street
moneylenders'...

to the most powerful
financial force in Europe.

But it's this painting,
Botticelli's Adorazione dei Magi,

which more than
any other captures...

the transfiguration of finance
the Medici had achieved.

On close inspection,

the three wise men
are Cosimo de Medici,

washing the feet of Christ.

And his sons Piero and Giovanni.

The young man with
on the left is Lorenzo.

The painting had
been commissioned...

by the head of the Bankers'
Guild as a tribute to the family.

Perhaps it should really have been
called The Adoration of the Medici.

Having once been damned,
bankers were now close 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 political big time.

And they did it by
learning one crucial lesson:

in finance, small
is seldom beautiful.

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 lending,

they reduced their exposure
to defaults by borrowers.

For Cosimo and his family,

it was a truly beautiful
business model.

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 Italian
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 recently 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
have trouble paying their debts.

You only need to look
at the shopping mall...

for the seriously poor.

And the ubiquitous
no-frills eatery.

Then there's a tax
advisor who can tell you...

how to claim your
low-income credits.

A shop where you can borrow money
on the equity you own in your car.

And a place where they'll give you
advance on next week's pay cheque.

Not to mention a pawn store
the size of a department store.

And finally, when you've
no possessions left...

to pawn or to sell,
there's just one option left.

And that's to head on
down to ZLB Plasma...

where you can sell your own
blood for $25 dollars a pop.

Talk about being "bled
dry". It's amazing really...

an entire economic sector
based on people who are broke.

In 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 debt is easy.

Well, pretty easy.

This is Richie.

He's in the repo business:

snatching cars from
under their owners' noses...

because they haven't
made their payments.

He grabbed that bolt action,
he went and I watched...

the rifle shell go in the barrel
and he lunged it towards me...

and hit me right here and
almost knocked me down.

He said, "Either you drop
the truck or I'm dropping you".

And I said, "Yessir",
and I dropped the truck.

You know, make it
sound so attractive,

- maybe I should switch jobs.
- I tell you what, it's interesting.

In the bankruptcy
capital of America,

repossessing cars
is a routine matter.

16,000 dollars...

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.

Technically the
Memphis repo men...

are simply doing what debt
collectors do the world over.

The difference, apart from the
sheer mind-boggling scale of the thing,

is the relative ease with which
the bad debts are wound up...

and the collateral is sold off.

For the debtors, there's
virtually no social stigma

and nobody seems
to be getting hurt.

The big mystery is why the world's
most successful capital economy...

is based on a foundation of more
or less painless economic failure.

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
13,000 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
else in there that...

they're having to pay off.

Actually there are three cars.

- Three cars?
- Yes.

The third car is the
neighbourhood title loans,

has a lien on the car,
they are holding the title.

So putting this really simply,

what were they
supposed to be paying...

and what are they now paying?

Well, that payment
was reduced from

241.11 down to 107.

- Okay.
- By approvement.

Cutting their monthly
obligations by more than half.

From 1996 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.

In medieval Italy...

or in the Glasgow of my
youth, for that matter...

bankruptcy was
seen as a disaster.

But not here.

In fact, this ability to
walk away unscathed...

from unsustainable debt
and start all over again...

has been a defining characteristic
of American capitalism.

There were no debtors'
prisons here in the early 1800s,

at a time when English debtors
could languish in jail for years.

Since 1898, every
American has been entitled...

to file for chapter
VII (liquidation)...

or chapter XIII (voluntary
personal reorganization).

For rich and poor alike,

bankruptcy has become as
much of an "inalienable right"...

as "life, liberty 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 from trial...

and error how to
make that first million.

Because today's bankrupt might
be tomorrow's successful billionaire.

It'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 13 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 only when
borrowers like the ones

on this Glasgow
housing estate...

have access to
efficient credit markets...

that they can escape
from the clutches...

of the Shylocks
and the loan sharks.

It's only when savers can put
their money in dependable banks...

that it can be channeled
from the idle to the industrious.

But wait, I 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?

Well, 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 "securitized”
and sold on to unwary investors.

Once upon a time being a
banker was really quite boring.

You lived by the 3-6-3 rule:

which meant you
paid 3% on deposits,

collected 6% on loans...

and were on the golf
course by 3 o'clock.

But in our time, banking became
really rather too interesting.

A whole series of
financial innovations...

made it possible for
common or garden loans...

to poor folks in
places like Memphis...

to metamorphose into
weird and wonderful things...

with names like
"collateralized debt obligations".

Well this financial alchemy...

turning lead into
gold or toxic waste...

into gilt-edged securities...

was only possible because
the ascent of banks...

was followed by the ascent
of the second great pillar...

of the modern financial system:

the bond market.

And for an explanation
of how that came about,

we'll turn to Mr. Bond himself.