1 00:00:03,720 --> 00:00:06,234 Welcome to the world of money, 2 00:00:06,320 --> 00:00:08,709 bread, cash, dosh, 3 00:00:08,800 --> 00:00:12,588 dough, loot, lucre, moolah, 4 00:00:12,680 --> 00:00:14,511 the readies, the wherewithal. 5 00:00:16,640 --> 00:00:21,953 Call it what you like, money can break us or it can make us. 6 00:00:24,240 --> 00:00:26,196 ln the past year, it's certainly broken 7 00:00:26,280 --> 00:00:28,748 more than a few of the biggest names on Wall Street 8 00:00:28,840 --> 00:00:30,717 and in the City of London. 9 00:00:34,760 --> 00:00:38,275 And while former masters of the universe crash and burn, 10 00:00:38,360 --> 00:00:42,273 the rest of us are left worrying if our savings would be safer in a mattress 11 00:00:42,360 --> 00:00:44,032 than in a bank. 12 00:00:46,640 --> 00:00:50,235 The great financiaI crisis that began in the summer of 2007 13 00:00:50,320 --> 00:00:52,754 has most of us utterIy baffIed. 14 00:00:52,840 --> 00:00:56,116 How on earth couId a IittIe IocaI difficuIty 15 00:00:56,200 --> 00:00:58,839 with sub-prime mortgages in the United States 16 00:00:58,920 --> 00:01:01,832 unIeash an economic tsunami big enough 17 00:01:01,920 --> 00:01:05,879 to obIiterate some of WaII Street's most iIIustrious names, 18 00:01:05,960 --> 00:01:09,475 to force nationaIisations of banks on both sides of the AtIantic 19 00:01:09,560 --> 00:01:13,997 and to bring the entire worId economy to the very brink of recession, 20 00:01:14,080 --> 00:01:15,752 if not downright depression? 21 00:01:15,840 --> 00:01:19,196 ShouIdn't this series be caIIed The Descent Of Money? 22 00:01:19,280 --> 00:01:23,114 WeII, I want to expIain to you just how money rose 23 00:01:23,200 --> 00:01:28,320 to pIay such a terrifyingIy dominant roIe in aII our Iives. 24 00:01:29,880 --> 00:01:33,190 What's more, l want to reveal financial history 25 00:01:33,280 --> 00:01:37,034 as the essential back story behind all history. 26 00:01:39,000 --> 00:01:44,916 Banks financed the Renaissance while the bond market decided wars. 27 00:01:50,120 --> 00:01:52,634 Stock markets built empires... 28 00:01:53,760 --> 00:01:57,150 ..and monetary meltdowns made revolutions. 29 00:02:01,640 --> 00:02:05,349 From Ancient Mesopotamia right down to present day London, 30 00:02:05,440 --> 00:02:10,036 the ascent of money has been an indispensable part of the ascent of man. 31 00:02:10,120 --> 00:02:14,159 But money's rise has never been a smooth, upward ride. 32 00:02:14,240 --> 00:02:18,279 As we'II see, financiaI history has repeatedIy been interrupted 33 00:02:18,360 --> 00:02:22,831 by gut-wrenching crises of which today's is just the Iatest. 34 00:02:22,920 --> 00:02:25,992 From the fluctuating prices of the homes we own 35 00:02:26,080 --> 00:02:29,038 to the high-speed industrialisation of China, 36 00:02:29,120 --> 00:02:34,558 the power of finance is everywhere we look and it affects all of our lives. 37 00:02:36,280 --> 00:02:38,748 SEAGULLS CRY 38 00:02:38,840 --> 00:02:43,072 But are you in on the secret? Do you know what causes a bank run 39 00:02:43,160 --> 00:02:45,799 or a monetary meItdown or a stock market crash? 40 00:02:45,880 --> 00:02:49,475 Can you teII the difference between a sub-prime Ioan and a prime Ioan? 41 00:02:49,560 --> 00:02:53,075 WeII, I think these financiaI technicaIities onIy reaIIy make sense 42 00:02:53,160 --> 00:02:54,991 once you know where they came from. 43 00:02:55,080 --> 00:02:59,551 And that's why financiaI history is of more than mereIy academic interest. 44 00:02:59,640 --> 00:03:03,428 Not knowing this stuff can seriousIy damage your weaIth. 45 00:03:28,560 --> 00:03:33,236 Crisis or no crisis, the amount of money sloshing around planet finance 46 00:03:33,320 --> 00:03:34,799 still boggles the mind. 47 00:03:35,920 --> 00:03:42,029 By one measure, the US stock of money is now $8, 7 00,000,000,000, 48 00:03:42,120 --> 00:03:44,680 up 1 2% since last year. 49 00:03:44,760 --> 00:03:49,595 And some people are still pocketing a huge share of that cash. 50 00:03:52,640 --> 00:03:55,632 Last year, despite the onset of the biggest financial crisis 51 00:03:55,720 --> 00:04:03,149 since the Depression, his hedge fund paid George Soros a cool $2.4 billion. 52 00:04:03,240 --> 00:04:08,633 That's roughly 41,000 times more than the average American family earned. 53 00:04:08,720 --> 00:04:12,554 As they say on Wall Street, ''Way to gol''. 54 00:04:24,920 --> 00:04:29,710 Now, however, imagine a world with no money. 55 00:04:34,080 --> 00:04:37,550 500 years ago, the most powerful society in South America, 56 00:04:37,640 --> 00:04:41,315 the lnca Empire, had no real concept of money. 57 00:04:41,400 --> 00:04:47,157 The lncas appreciated the aesthetic qualities of rare metals - 58 00:04:47,240 --> 00:04:52,155 gold was the sweat of the sun, silver the tears of the moon - 59 00:04:52,240 --> 00:04:55,198 labour was the unit of value in the lnca Empire, 60 00:04:55,280 --> 00:04:58,795 just as it was later supposed to be in a communist society. 61 00:05:02,680 --> 00:05:05,592 But in 1 532, the lncas ran into a man 62 00:05:05,680 --> 00:05:08,752 whose hunger for money had led him across an ocean. 63 00:05:11,560 --> 00:05:16,156 Francisco Pizarro and his fellow Conquistadores had come from Spain 64 00:05:16,240 --> 00:05:20,438 to what they called Upper Peru inspired by the legend of El Dorado, 65 00:05:20,520 --> 00:05:23,398 the realm of the gold-covered king. 66 00:05:26,280 --> 00:05:30,114 After defeating the lnca army at the Battle of Cajamarca 67 00:05:30,200 --> 00:05:31,758 their quest began in earnest. 68 00:05:33,880 --> 00:05:36,314 At Potosi, in what is now Bolivia, 69 00:05:36,400 --> 00:05:38,789 the Spaniards struck it rich. 70 00:05:38,880 --> 00:05:43,795 They discovered the Cerro Rico, literally the Rich Hill. 71 00:05:43,880 --> 00:05:48,032 Towering nearly 1 6,000 feet above sea level, 72 00:05:48,120 --> 00:05:49,678 it was a money mountain. 73 00:05:51,840 --> 00:05:57,437 In their 250 years of Spanish ruIe, more than two biIIion ounces of siIver 74 00:05:57,520 --> 00:06:03,311 were extracted from mines Iike this one, 1 4,000 feet up in the Andes. 75 00:06:03,400 --> 00:06:08,838 What the Incas couIdn't grasp was why the Europeans had such an insatiabIe Iust 76 00:06:08,920 --> 00:06:10,433 for goId and siIver. 77 00:06:10,520 --> 00:06:13,956 They couIdn't understand that to Pizarro and the Conquistadores, 78 00:06:14,040 --> 00:06:16,759 siIver was much more than just shiny metaI. 79 00:06:16,840 --> 00:06:18,876 It couId be made into money... 80 00:06:20,000 --> 00:06:25,438 ..a store of vaIue, a unit of account, portabIe power. 81 00:06:32,640 --> 00:06:36,553 I must say, I find this pIace pretty harrowing. 82 00:06:36,640 --> 00:06:39,154 The Spaniards had a system of forced Iabour 83 00:06:39,240 --> 00:06:43,119 which meant that every abIe-bodied maIe in the native popuIation 84 00:06:43,200 --> 00:06:45,794 had to do a stint down these mines. 85 00:06:45,880 --> 00:06:51,193 And you can see why one in eight of them didn't survive the ordeaI. 86 00:07:01,400 --> 00:07:03,470 Today, 500 years later, 87 00:07:03,560 --> 00:07:07,235 conditions for miners in the Cerro Rico haven't improved much. 88 00:07:09,160 --> 00:07:11,754 But at least they get paid for the work they do. 89 00:07:11,840 --> 00:07:17,756 ln those days, it was a way of making money that verged on genocide. 90 00:07:22,520 --> 00:07:26,957 The silver ore was ground up, refined with mercury 91 00:07:27,040 --> 00:07:29,600 and then shipped to Europe as bars and coins. 92 00:07:31,240 --> 00:07:37,395 Empire, it seemed, had made the Spanish crown rich beyond the dreams of avarice. 93 00:07:50,040 --> 00:07:52,679 And yet, aII the siIver in the mines of Potosi 94 00:07:52,760 --> 00:07:58,153 couIdn't haIt the inexorabIe economic and poIiticaI decIine of Spain's empire. 95 00:07:58,240 --> 00:08:02,518 Why was that, when Pizarro seemed to have struck it so incredibIy rich? 96 00:08:02,600 --> 00:08:05,956 The answer is that the Spaniards had dug up so much siIver 97 00:08:06,040 --> 00:08:08,110 to finance their wars of conquest, 98 00:08:08,200 --> 00:08:12,432 that the metaI itseIf suffered an extraordinary decIine in vaIue. 99 00:08:12,520 --> 00:08:15,273 More siIver coins didn't make Spain richer. 100 00:08:15,360 --> 00:08:19,353 They simpIy made prices higher as an increased quantity of money 101 00:08:19,440 --> 00:08:21,954 chased the same amount of goods. 102 00:08:22,040 --> 00:08:23,632 What the Spaniards didn't get 103 00:08:23,720 --> 00:08:28,475 was that money is onIy worth what other peopIe wiII give in exchange for it. 104 00:08:35,400 --> 00:08:38,551 And, whether money takes the form of silver coins, 105 00:08:38,640 --> 00:08:41,552 seashells, bars of gold or bank notes, 106 00:08:41,640 --> 00:08:45,428 that's been true from ancient times right down to the present day. 107 00:08:45,520 --> 00:08:48,876 Even lumps of clay can work better than silver coins, 108 00:08:48,960 --> 00:08:51,599 if people have enough confidence in them. 109 00:08:51,680 --> 00:08:55,912 In Ancient Mesopotamia, nearIy 4,000 years ago, 110 00:08:56,000 --> 00:08:58,150 peopIe used cIay tabIets Iike these ones 111 00:08:58,240 --> 00:09:01,471 to commit themseIves to particuIar financiaI transactions. 112 00:09:01,560 --> 00:09:06,350 For exampIe, this one, found a IittIe south-west of Baghdad, 113 00:09:06,440 --> 00:09:12,231 specifies that a debtor wiII repay a Iender 330 measures of grain 114 00:09:12,320 --> 00:09:16,108 on the harvest day. But this one's even more fascinating, 115 00:09:16,200 --> 00:09:19,875 because what is says is that a debt of four measures of barIey 116 00:09:19,960 --> 00:09:22,997 shouId be repaid to the bearer of the cIay tabIet 117 00:09:23,080 --> 00:09:27,312 and it's that idea of repayment to the bearer that reaIIy fascinates me. 118 00:09:31,600 --> 00:09:34,990 lf the phrase sounds familiar, then it should. 119 00:09:35,080 --> 00:09:37,275 Just take a look at a �20 note. 120 00:09:40,600 --> 00:09:43,319 Bank notes have next to no intrinsic worth. 121 00:09:43,400 --> 00:09:45,709 They're simply promises to pay, 122 00:09:45,800 --> 00:09:50,112 just like the clay tablets of ancient Babylon four millennia ago. 123 00:09:50,200 --> 00:09:57,311 On the back of the $1 0 bill it says, ''ln God We Trust''. 124 00:09:57,400 --> 00:10:00,790 But it's not really God you're trusting in. 125 00:10:00,880 --> 00:10:04,759 By swapping your goods or your Iabour for a fistfuI of these things, 126 00:10:04,840 --> 00:10:09,197 you're trusting the US Treasury Secretary not to repeat Spain's mistake 127 00:10:09,280 --> 00:10:12,909 and produce so many of the damn things that by the time you come to spend them, 128 00:10:13,000 --> 00:10:15,673 they're worth even Iess than the paper they're printed on. 129 00:10:25,840 --> 00:10:28,593 Today we're quite happy with paper money. 130 00:10:33,160 --> 00:10:37,358 Even more amazingly, we're happy with money we can't even see. 131 00:10:37,440 --> 00:10:43,231 Millions of dollars pass through this woman's hands every day... 132 00:10:44,360 --> 00:10:49,115 ..or rather, across her computer screen. 133 00:10:49,200 --> 00:10:51,873 She's a foreign exchange dealer, 134 00:10:51,960 --> 00:10:54,713 whose business is literally buying and selling money. 135 00:10:54,800 --> 00:10:58,588 Each day around $3 trillion changes hands 136 00:10:58,680 --> 00:11:01,831 in transactions like these around the world. 137 00:11:04,240 --> 00:11:09,155 And it's all built on trust. lt has to be when you can't even touch the stuff. 138 00:11:12,320 --> 00:11:15,995 That's what the Conquistadores got wrong. 139 00:11:16,080 --> 00:11:19,914 They failed to see that money is about trust - even faith. 140 00:11:20,000 --> 00:11:22,036 Trust in the person paying you the money, 141 00:11:22,120 --> 00:11:24,429 trust in the centraI bank issuing the money, 142 00:11:24,520 --> 00:11:27,273 trust in the commerciaI bank that honours the cheque. 143 00:11:27,360 --> 00:11:30,432 Money isn't metaI. It's trust inscribed. 144 00:11:30,520 --> 00:11:35,150 And it doesn't much matter what it's inscribed on - paper, siIver, cIay, 145 00:11:35,240 --> 00:11:38,835 or a screen - provided the recipient beIieves in it. 146 00:11:45,480 --> 00:11:47,914 There was one huge possibility created 147 00:11:48,000 --> 00:11:51,959 by the emergence of money as a system of mutual trust - 148 00:11:52,040 --> 00:11:55,430 a possibility that would revolutionise world history. 149 00:11:57,440 --> 00:12:02,719 lt was the idea that you could rely on people to borrow money from you 150 00:12:02,800 --> 00:12:05,394 and pay it back at some future date. 151 00:12:07,040 --> 00:12:12,672 That's why the root of ''credit'' is ''credo'', the Latin for ''I beIieve''. 152 00:12:16,120 --> 00:12:17,792 Without the invention of credit, 153 00:12:17,880 --> 00:12:22,556 the entire economic history of our world would have been impossible. 154 00:12:31,600 --> 00:12:34,478 Because we take it for granted, 155 00:12:34,560 --> 00:12:38,599 we tend to underestimate the extent to which our entire civiIisation is based on 156 00:12:38,680 --> 00:12:43,310 the borrowing and Iending of money. No, it doesn't IiteraIIy make the worId go round. 157 00:12:43,400 --> 00:12:47,109 But it does makes vast quantities of peopIe, goods and services 158 00:12:47,200 --> 00:12:50,670 go around the worId from BabyIon to BoIivia. 159 00:12:52,920 --> 00:12:57,835 The puzzle is that the early moneylenders got so little thanks for their services. 160 00:12:57,920 --> 00:13:02,516 On the contrary, they were widely reviled as pariahs. 161 00:13:03,960 --> 00:13:05,359 Why was that? 162 00:13:15,960 --> 00:13:21,273 Welcome to Northern ltaly in the year 1 200AD. 163 00:13:24,920 --> 00:13:28,674 A land divided into multiple feuding city states. 164 00:13:31,960 --> 00:13:36,476 A land where trust was in rather short supply. 165 00:13:36,560 --> 00:13:42,112 Among the many remnants of the defunct Roman Empire was a numerical system 166 00:13:42,200 --> 00:13:45,988 singularly ill-suited to complex mathematical calculation, 167 00:13:46,080 --> 00:13:48,116 let alone the needs of commerce. 168 00:13:50,120 --> 00:13:53,237 Nowhere was this more of a handicap than in Pisa, 169 00:13:53,320 --> 00:13:55,117 where merchants struggled to do business 170 00:13:55,200 --> 00:13:58,636 with seven different forms of coinage in circulation. 171 00:13:58,720 --> 00:14:03,191 Even the simplest transaction could be a headache, requiring the use of an abacus. 172 00:14:03,280 --> 00:14:06,670 By comparison, economic life in the Eastern world - 173 00:14:06,760 --> 00:14:12,153 in the Muslim caliphate or the Sung Chinese Empire - was far more advanced. 174 00:14:12,240 --> 00:14:17,439 To discover modern finance, backward Europe needed to import it. 175 00:14:20,280 --> 00:14:26,071 Enter a young mathematician called Leonardo of Pisa or Fibonacci. 176 00:14:26,160 --> 00:14:30,119 The son of a Pisan customs official based in what is now Algeria, 177 00:14:30,200 --> 00:14:32,316 Fibonacci is best remembered today 178 00:14:32,400 --> 00:14:36,188 for his sequence of numbers that mimic the properties of nature. 179 00:14:38,520 --> 00:14:43,913 But the famous sequence was onIy one of many Eastern mathematicaI ideas 180 00:14:44,000 --> 00:14:48,516 that Fibonacci introduced to Europe with his path-breaking book the Liber Abaci - 181 00:14:48,600 --> 00:14:50,113 The Book of Calculation. 182 00:14:50,200 --> 00:14:55,069 Even more important was his demonstration of the superiority of Arabic numerals 183 00:14:55,160 --> 00:14:56,832 over Roman numerals. 184 00:14:56,920 --> 00:15:00,833 And crucially, nearly all Fibonacci's examples related to business. 185 00:15:07,000 --> 00:15:08,194 Since Roman times, 186 00:15:08,280 --> 00:15:13,070 Europeans had been struggling to do simple arithmetic with these... 187 00:15:18,920 --> 00:15:23,789 The Hindu or Arabic numerals made all kinds of calculation easier. 188 00:15:32,080 --> 00:15:37,632 ln particular, Fibonacci showed how the new methods of calculation 189 00:15:37,720 --> 00:15:41,156 could be applied to commercial bookkeeping, to currency conversions 190 00:15:41,240 --> 00:15:45,199 and, crucially, to the computation of interest. 191 00:15:45,280 --> 00:15:49,034 Just imagine trying to work out percentages in Roman numerals. 192 00:15:49,120 --> 00:15:53,238 Fibonacci's Liber Abaci made it child's play. 193 00:15:57,040 --> 00:16:01,352 This was to be the appIication of mathematics to making money. 194 00:16:08,280 --> 00:16:11,272 The most fertile soil for such financial seeds 195 00:16:11,360 --> 00:16:13,828 proved to be the ltalian city states. 196 00:16:13,920 --> 00:16:17,117 Fibonacci's home town of Pisa was one. 197 00:16:17,200 --> 00:16:19,475 But it was above all Venice - 198 00:16:19,560 --> 00:16:22,950 more exposed than any of the others to Oriental influences - 199 00:16:23,040 --> 00:16:25,634 that became the great money-lending laboratory... 200 00:16:31,280 --> 00:16:35,239 ..and the home of literature's most notorious moneylender - 201 00:16:35,320 --> 00:16:39,518 Shylock, in William Shakespeare's The Merchant of Venice. 202 00:16:43,040 --> 00:16:46,794 May you stead me? WiII you pIeasure me? 203 00:16:46,880 --> 00:16:50,316 ShaII I know your answer? 204 00:16:50,400 --> 00:16:55,679 CruciaIIy, ShyIock's onIy prepared to Iend the money if Bassanio's friend, 205 00:16:55,760 --> 00:16:59,116 the merchant Antonio, is providing the security. 206 00:17:00,280 --> 00:17:06,594 Three thousand ducats for three months and Antonio bound. 207 00:17:06,680 --> 00:17:08,033 Your answer to that. 208 00:17:08,120 --> 00:17:11,351 Antonio is a good man. 209 00:17:11,440 --> 00:17:15,319 By ''good'', ShyIock doesn't mean virtuous, 210 00:17:15,400 --> 00:17:18,517 he means ''good'' for the money he's about to Iend Bassanio. 211 00:17:18,600 --> 00:17:20,750 In other words, creditworthy. 212 00:17:21,880 --> 00:17:24,599 Have you heard any imputation to the contrary? 213 00:17:24,680 --> 00:17:29,231 Oh, no, no, no, no. My reason in saying that he's a good man 214 00:17:29,320 --> 00:17:33,313 is to have you understand me that he is sufficient. 215 00:17:34,440 --> 00:17:42,996 (ShyIock) Three thousand ducats. I think I may take his bond. 216 00:17:45,240 --> 00:17:48,516 With any loan, things can go wrong. 217 00:17:48,600 --> 00:17:53,958 Ships can sink. And that is precisely why anyone who lends money to a merchant - 218 00:17:54,040 --> 00:17:58,397 if only for the duration of an ocean voyage - needs to be compensated. 219 00:17:58,480 --> 00:18:01,711 We usually call the compensation ''interest'' - 220 00:18:01,800 --> 00:18:06,749 the amount paid to the lender over and above the sum lent or ''principal''. 221 00:18:09,520 --> 00:18:11,875 Overseas trade of the sort that Venice depended on 222 00:18:11,960 --> 00:18:15,077 couldn't operate without such transactions. 223 00:18:15,160 --> 00:18:19,597 And they remain the foundation of international trade to this day. 224 00:18:28,440 --> 00:18:31,955 But why does Shylock turn out to be such a villain, 225 00:18:32,040 --> 00:18:36,989 demanding literally ''a pound of flesh'' - in effect Antonio's death - 226 00:18:37,080 --> 00:18:43,474 if he can't fulfil his obligations? Why is Shakespeare's moneylender so heartless - 227 00:18:43,560 --> 00:18:46,472 the original of that bloodsucking financier 228 00:18:46,560 --> 00:18:50,075 who recurs time and again in Western literature? 229 00:18:56,720 --> 00:19:02,033 One clue is that Shylock is one of the many Jewish moneylenders in history. 230 00:19:02,120 --> 00:19:05,430 Jews who stayed in Venice for more than two weeks 231 00:19:05,520 --> 00:19:10,594 were supposed to wear a yellow ''O'' on their backs or a yellow hat. 232 00:19:10,680 --> 00:19:14,958 And they were confined to a special area which became known as the Ghetto Nuovo. 233 00:19:18,120 --> 00:19:22,716 This is the entrance to the Jewish ghetto in Venice where Jews were obIiged to Iive 234 00:19:22,800 --> 00:19:27,828 and indeed confined at night. Jews were toIerated in Venice, but for a reason. 235 00:19:30,400 --> 00:19:34,916 The key was that Jews could provide a service that Christian merchants 236 00:19:35,000 --> 00:19:39,357 were forbidden to do - they could charge interest on their loans. 237 00:19:39,440 --> 00:19:42,876 Fibonacci might have figured out the mathematics of lending, 238 00:19:42,960 --> 00:19:46,794 but it took Shylock to do the deal. 239 00:19:49,400 --> 00:19:52,358 This is where the Venetian Jews used to do business. 240 00:19:52,440 --> 00:19:54,556 This buiIding here was the oId Banco Rosso 241 00:19:54,640 --> 00:19:59,395 and it was outside here that they used to sit behind their tabIes - their tavoIe - 242 00:19:59,480 --> 00:20:04,918 on their benches - their banchi, the root of the ItaIian word for banks. 243 00:20:05,000 --> 00:20:09,073 Now, there was good reason why merchants came here to the Jewish ghetto 244 00:20:09,160 --> 00:20:12,550 to borrow money. For Christians, what the Jews were doing, 245 00:20:12,640 --> 00:20:15,757 Iending money at interest, was a sin. 246 00:20:21,000 --> 00:20:25,551 The medieval Church's laws against usury - charging interest on loans - 247 00:20:25,640 --> 00:20:29,599 were a major obstacle to the development of finance in Europe. 248 00:20:29,680 --> 00:20:33,229 After all, what God-fearing Christian merchant 249 00:20:33,320 --> 00:20:35,754 wished to risk the torments of Hell? 250 00:20:35,840 --> 00:20:39,469 This astonishing vision of eternaI damnation 251 00:20:39,560 --> 00:20:42,791 was painted by Giorgio Vasari and Federico Zuccari 252 00:20:42,880 --> 00:20:46,998 on the inside of the great dome of FIorence's CathedraI, the Duomo. 253 00:20:47,080 --> 00:20:52,313 And beIow there's another fresco by Domenico di MicheIino 254 00:20:52,400 --> 00:20:55,790 of FIorence's greatest poet, Dante AIighieri, 255 00:20:55,880 --> 00:20:58,474 hoIding his masterwork, the Divine Comedy. 256 00:20:58,560 --> 00:21:02,599 According to Dante, there was a speciaI part of the seventh circIe of HeII 257 00:21:02,680 --> 00:21:07,276 that was excIusiveIy set aside for usurers. 258 00:21:15,520 --> 00:21:20,799 There the moneylenders were eternally tortured with scorching earth 259 00:21:20,880 --> 00:21:25,192 and freezing snow, their necks weighed down with bulging purses. 260 00:21:27,760 --> 00:21:30,832 Jews, too, weren't supposed to Iend at interest. 261 00:21:30,920 --> 00:21:32,638 But there was a convenient get-out cIause 262 00:21:32,720 --> 00:21:36,918 in the OId Testament book of Deuteronomy, chapter 23, 263 00:21:37,000 --> 00:21:41,437 you weren't supposed to Iend to your brother at interest, but to a stranger? 264 00:21:41,520 --> 00:21:46,036 WeII, that was a different matter. In other words, a Jew couIdn't Iend to a Jew, 265 00:21:46,120 --> 00:21:48,554 but he couId Iend to a Christian. 266 00:21:51,920 --> 00:21:56,948 The price the Jews paid for performing this service was social exclusion. 267 00:21:57,040 --> 00:21:59,554 Hence the ghetto. 268 00:21:59,640 --> 00:22:04,953 And hence the centuries-long association between Jews and finance, 269 00:22:05,040 --> 00:22:10,239 one of the few forms of economic activity from which Jews were not once excluded. 270 00:22:13,240 --> 00:22:16,198 ln the end, of course, Shylock is thwarted. 271 00:22:16,280 --> 00:22:20,273 For although the court recognises his right to a pound of flesh, 272 00:22:20,360 --> 00:22:23,909 the law also prohibits him from shedding Antonio's blood. 273 00:22:24,000 --> 00:22:28,835 And, because he's a Jew, the law also requires the loss of his goods and life 274 00:22:28,920 --> 00:22:31,434 for so much as plotting the death of a Christian. 275 00:22:31,520 --> 00:22:34,830 He only escapes by submitting to baptism. 276 00:22:36,200 --> 00:22:39,875 lt turns out to be a risky business to be a moneylender. 277 00:22:41,800 --> 00:22:44,997 The Merchant of Venice raises profound questions 278 00:22:45,080 --> 00:22:47,514 about both economics and anti-Semitism. 279 00:22:47,600 --> 00:22:50,956 Why don't debtors aIways defauIt on their debts - 280 00:22:51,040 --> 00:22:54,191 especiaIIy when the creditors beIong to unpopuIar ethnic minorities? 281 00:22:54,280 --> 00:22:58,398 Why don't the ShyIocks aIways Iose out? 282 00:23:03,920 --> 00:23:07,435 To get a better idea of how primitive moneyIending works, 283 00:23:07,520 --> 00:23:09,829 you don't need to traveI back in time. 284 00:23:09,920 --> 00:23:14,072 There are pIenty of modern-day ShyIocks remarkabIy cIose to home. 285 00:23:14,160 --> 00:23:19,075 And they don't need to be Jewish to suffer a simiIar fate to ShyIock. 286 00:23:35,920 --> 00:23:39,515 This is ShettIeston in the East End of GIasgow. 287 00:23:39,600 --> 00:23:42,239 It's actuaIIy where my grandmother used to Iive. 288 00:23:42,320 --> 00:23:45,630 And I think with its distinctive steeI shuttering, 289 00:23:45,720 --> 00:23:48,996 it's one of the grimmest pIaces in the whoIe of Western Europe. 290 00:23:49,080 --> 00:23:52,959 In fact, average maIe Iife expectancy here is just 64, 291 00:23:53,040 --> 00:23:55,110 which is sIightIy worse than BangIadesh. 292 00:23:55,200 --> 00:23:59,193 That means that the average ShettIestonian doesn't actuaIIy Iive Iong enough 293 00:23:59,280 --> 00:24:00,952 to coIIect his state pension. 294 00:24:01,040 --> 00:24:03,349 You might think nobody wouId be mad enough 295 00:24:03,440 --> 00:24:07,752 to try and provide financiaI services here. But someone does. 296 00:24:14,880 --> 00:24:17,075 That someone is a loan shark. 297 00:24:17,160 --> 00:24:21,278 You give him your benefit card as security and he gives you a loan. 298 00:24:21,360 --> 00:24:24,875 On the day your benefit arrives, he gives you back the card 299 00:24:24,960 --> 00:24:27,076 and you go to the post office to get your money, 300 00:24:27,160 --> 00:24:32,553 repaying him the interest. lt's a modern version of Shylock's business model. 301 00:24:32,640 --> 00:24:37,236 Usury is alive and well and living in Scotland. 302 00:24:38,600 --> 00:24:41,876 These are some pages from the Ioan book of a GIasgow Ioan shark. 303 00:24:41,960 --> 00:24:44,713 And it's kind of interesting to see how the business modeI works. 304 00:24:44,800 --> 00:24:46,995 You Iend out maybe �10 to someone 305 00:24:47,080 --> 00:24:51,153 and you expect to be paid back �12.50 at the end of the week. 306 00:24:51,240 --> 00:24:56,314 Now that's 25% a week, but if you work that out at an annuaI rate 307 00:24:56,400 --> 00:24:59,358 it comes to 1 1 miIIion per cent. 308 00:25:06,400 --> 00:25:10,791 So why do people scraping by on just �5.90 a day 309 00:25:10,880 --> 00:25:13,553 pay such horrendous interest on loans? 310 00:25:13,640 --> 00:25:18,873 These, surely, are loans you'd be mad not to default on. 311 00:25:18,960 --> 00:25:23,829 But here in Glasgow, defaulting on your loan is highly inadvisable. 312 00:25:23,920 --> 00:25:27,435 You won't literally lose a pound of flesh, 313 00:25:27,520 --> 00:25:31,149 but grievous bodily harm isn't an unknown consequence 314 00:25:31,240 --> 00:25:34,152 of letting down the loan shark. 315 00:25:35,280 --> 00:25:40,434 Quite simply, individual loan sharks have to be rapacious and ruthless 316 00:25:40,520 --> 00:25:46,072 because the costs to them of even a single defaulter are so high. 317 00:25:48,240 --> 00:25:52,916 And that explains why, from Renaissance ltaly to modern Scotland, 318 00:25:53,000 --> 00:25:56,276 the moneylender is so often a hated figure. 319 00:25:56,360 --> 00:26:01,275 He's providing a service, but at a socially unacceptable price. 320 00:26:05,280 --> 00:26:08,511 So how did Ienders Iearn to overcome this fundamentaI probIem? 321 00:26:08,600 --> 00:26:11,672 If they were too generous, they didn't make any money, 322 00:26:11,760 --> 00:26:15,435 but if they were too hard-nosed, borrowers wouId eventuaIIy defauIt. 323 00:26:15,520 --> 00:26:22,198 The answer was to get bigger and more powerfuI. It was time to invent banks. 324 00:26:27,600 --> 00:26:32,833 ln 1 5th century ltaly, the key financial service of providing credit 325 00:26:32,920 --> 00:26:37,835 moved out of the ghetto to become the legitimate preserve of banks. 326 00:26:37,920 --> 00:26:44,359 This transition was symbolised by the rise of one family - the Medici. 327 00:26:47,480 --> 00:26:51,951 With their ascent, credit came of age. 328 00:26:52,040 --> 00:26:54,508 Moneylending ceased to be disreputable. 329 00:26:54,600 --> 00:26:58,798 lt became glorious - and the foundation of a new kind of power. 330 00:27:02,680 --> 00:27:05,478 The dazzling legacy of the Medici family's power 331 00:27:05,560 --> 00:27:07,551 still surrounds you in Florence today. 332 00:27:10,200 --> 00:27:14,432 In the space of 400 years, two Medici became Queens of France, 333 00:27:14,520 --> 00:27:15,714 three became Pope. 334 00:27:16,840 --> 00:27:21,231 AppropriateIy, it was MachiaveIIi, the supreme theorist of power, 335 00:27:21,320 --> 00:27:23,072 who wrote their history. 336 00:27:25,720 --> 00:27:29,110 Perhaps no other family left such an imprint on an age 337 00:27:29,200 --> 00:27:31,714 as the Medici left on the Renaissance. 338 00:27:31,800 --> 00:27:35,076 You might even say that they paid for the Renaissance, 339 00:27:35,160 --> 00:27:40,393 their patronage running the gamut of genius from Michelangelo to Galileo. 340 00:27:47,160 --> 00:27:51,836 And this, in the Uffizi GaIIery, is the Medici's private art coIIection, 341 00:27:51,920 --> 00:27:54,514 one of the most spectacuIar ever assembIed. 342 00:28:02,600 --> 00:28:07,390 What the millions of tourists who flock here generally forget to ask 343 00:28:07,480 --> 00:28:10,358 is how the Medici paid for all this. 344 00:28:11,640 --> 00:28:15,076 The simpIe answer is that they were foreign exchange deaIers, 345 00:28:15,160 --> 00:28:20,280 members of the Arte de Cambio - the money changers' guiId - who made it big. 346 00:28:20,360 --> 00:28:25,036 They were known as banchieri or tavoIieri because, Iike the Jews of Venice, 347 00:28:25,120 --> 00:28:29,238 they IiteraIIy did their business sitting on benches behind tabIes. 348 00:28:29,320 --> 00:28:32,312 Indeed, the originaI Medici bank - or bench - 349 00:28:32,400 --> 00:28:36,712 was Iocated right here in the Via deII'Arte deIIa Lana - WooI GuiId Street. 350 00:28:45,440 --> 00:28:50,798 Prior to the 1 390s, the Medici were Florence's answer to the Sopranos - 351 00:28:50,880 --> 00:28:56,557 a small-time clan notable more for low violence than for high finance. 352 00:28:58,880 --> 00:29:03,078 ln a 1 7-year period, no fewer than five Medici were sentenced to death 353 00:29:03,160 --> 00:29:06,118 by the criminal courts for capital crimes. 354 00:29:09,440 --> 00:29:12,671 Then came Giovanni di Bicci de' Medici. 355 00:29:12,760 --> 00:29:16,548 lt was his aim to make the Medici totally legitimate. 356 00:29:16,640 --> 00:29:21,953 Part of the secret of his success was an ingenious bit of creative accounting 357 00:29:22,040 --> 00:29:26,158 that got the Medici off the hook of the anti-usury laws. 358 00:29:31,240 --> 00:29:34,391 These Iedgers of the Medici bank make it cIear 359 00:29:34,480 --> 00:29:38,519 how important commerciaI biIIs for financing foreign trade were to the bank. 360 00:29:38,600 --> 00:29:42,798 True, the Church prohibited the coIIection of interest on Ioans. 361 00:29:42,880 --> 00:29:45,030 But there was nothing to prevent a shrewd trader 362 00:29:45,120 --> 00:29:49,113 from making money on transactions Iike these, which invoIved muItipIe currencies. 363 00:29:52,520 --> 00:29:55,034 There was no interest, and therefore no sin, 364 00:29:55,120 --> 00:29:59,989 simply a commission deducted for the conversion of one currency into another. 365 00:30:04,680 --> 00:30:08,593 lf money was advanced to a particular trader for any length of time, 366 00:30:08,680 --> 00:30:11,114 the commission was that bit larger. 367 00:30:15,600 --> 00:30:19,798 ln the same way, depositors who put their money in the Medici bank 368 00:30:19,880 --> 00:30:24,032 were given 'discrezione' to compensate them for risking their money. 369 00:30:24,120 --> 00:30:26,315 This was credit, in other words, 370 00:30:26,400 --> 00:30:30,075 but with the interest payments discreetly concealed. 371 00:30:30,160 --> 00:30:35,871 Now, for the first time, moneylending had evolved into banking. 372 00:30:41,320 --> 00:30:44,596 The reaI story of the success of the Medici bank 373 00:30:44,680 --> 00:30:48,275 can be found here in the Libro Segreto - the Secret Book - 374 00:30:48,360 --> 00:30:54,117 of Giovanni di Bicci de' Medici. The key was not so much size as diversification. 375 00:30:54,200 --> 00:30:57,192 EarIier ItaIian banks had been monoIithic 376 00:30:57,280 --> 00:31:00,590 and very vuInerabIe to defauIt by a singIe bad borrower. 377 00:31:00,680 --> 00:31:05,071 But the Medici bank was made up of muItipIe interIocking partnerships, 378 00:31:05,160 --> 00:31:07,720 each in some measure independent of the rest. 379 00:31:07,800 --> 00:31:12,351 It was this decentraIisation that was the key to their astonishing profits. 380 00:31:15,840 --> 00:31:17,478 Under Giovanni's guidance, 381 00:31:17,560 --> 00:31:23,317 the Medici banking network extended from Florence, to Venice, to Rome. 382 00:31:23,400 --> 00:31:27,188 The scale and diversity of the Medici's operations 383 00:31:27,280 --> 00:31:30,078 was the key to reducing the risks of moneylending, 384 00:31:30,160 --> 00:31:33,197 and therefore also the costs to borrowers. 385 00:31:33,280 --> 00:31:37,717 That's the essential difference between loan sharks and banks - 386 00:31:37,800 --> 00:31:40,473 between Shylock and the Medici. 387 00:31:44,080 --> 00:31:45,991 And here's the proof that it worked. 388 00:31:46,080 --> 00:31:52,155 Page after page of Giovanni's assets, decIared for tax purposes 389 00:31:52,240 --> 00:31:59,032 and cuIminating in the grand totaI of 91 ,089 fIorins. In those days 390 00:31:59,120 --> 00:32:01,680 that was serious money. 391 00:32:06,200 --> 00:32:08,156 When Giovanni died in 1 429, 392 00:32:08,240 --> 00:32:11,994 his last words were an exhortation to his heirs 393 00:32:12,080 --> 00:32:15,436 to maintain his standards of financial acumen. 394 00:32:15,520 --> 00:32:19,513 His funeral was attended by 26 men of the name Medici, 395 00:32:19,600 --> 00:32:24,355 all paying homage to the man who had made the business of banking respectable - 396 00:32:24,440 --> 00:32:27,910 and profitable - as it had never been before. 397 00:32:32,000 --> 00:32:36,312 For his son Cosimo, the accumulation of wealth combined seamlessly 398 00:32:36,400 --> 00:32:38,516 with the accumulation of power. 399 00:32:38,600 --> 00:32:41,160 Within 20 years of his father's death, 400 00:32:41,240 --> 00:32:44,550 Cosimo de' Medici was the Florentine State. 401 00:32:47,200 --> 00:32:52,149 As the Pope himself put it - ''Political questions are settled at his house. 402 00:32:52,240 --> 00:32:54,629 ''The man he chooses holds office. 403 00:32:54,720 --> 00:32:58,918 ''He it is who decides peace and war and controls the laws. 404 00:32:59,000 --> 00:33:02,515 ''He is King in everything but name. '' 405 00:33:04,600 --> 00:33:08,434 This BotticeIIi is mainIy famous for the beauty of its young subject. 406 00:33:08,520 --> 00:33:13,435 But it's actuaIIy intended as a tribute to a dead banker, Cosimo de' Medici. 407 00:33:13,520 --> 00:33:15,238 That's him there on the medaIIion, 408 00:33:15,320 --> 00:33:18,312 and you can just make out the inscription Pater Patriae - 409 00:33:18,400 --> 00:33:20,595 the father of his country. 410 00:33:26,360 --> 00:33:32,469 ln 1 50 years, the Medici had transformed themselves from backstreet moneylenders 411 00:33:32,560 --> 00:33:35,438 to the most powerful financial force in Europe. 412 00:33:40,000 --> 00:33:45,518 But it's this painting, BotticeIIi's Adorazione dei Magi, 413 00:33:45,600 --> 00:33:49,832 which more than any other captures the transfiguration of finance 414 00:33:49,920 --> 00:33:51,831 the Medici had achieved. 415 00:33:51,920 --> 00:33:56,152 On cIose inspection, the three wise men are Cosimo de' Medici, 416 00:33:56,240 --> 00:34:01,030 washing the feet of Christ, and his sons Piero and Giovanni. 417 00:34:01,120 --> 00:34:03,793 The young man on the Ieft is Lorenzo. 418 00:34:03,880 --> 00:34:06,952 The painting had been commissioned by the head of the Bankers' GuiId 419 00:34:07,040 --> 00:34:09,110 as a tribute to the famiIy. 420 00:34:09,200 --> 00:34:12,909 Perhaps it shouId reaIIy have been caIIed The Adoration of the Medici. 421 00:34:13,000 --> 00:34:18,597 Having once been damned, bankers were now cIose to divinity. 422 00:34:20,600 --> 00:34:24,559 Nothing could better illustrate the extraordinary ascent of money. 423 00:34:24,640 --> 00:34:27,234 For what the Medici had achieved 424 00:34:27,320 --> 00:34:30,756 was nothing less than the birth of modern banking. 425 00:34:31,880 --> 00:34:33,313 Others had tried before, 426 00:34:33,400 --> 00:34:37,916 but the Medici were the first bankers to hit the poIiticaI big time. 427 00:34:38,000 --> 00:34:40,798 And they did it by Iearning one cruciaI Iesson - 428 00:34:40,880 --> 00:34:44,236 in finance, smaII is seIdom beautifuI. 429 00:34:44,320 --> 00:34:48,199 By making their bank bigger and more diversified, 430 00:34:48,280 --> 00:34:51,556 the Medici had found a way of spreading their risks. 431 00:34:51,640 --> 00:34:54,916 And by focusing on currency trading rather than just Iending, 432 00:34:55,000 --> 00:34:58,675 they'd reduced their exposure to defauIts by borrowers. 433 00:34:58,760 --> 00:35:04,118 For Cosimo and his famiIy, it was a truIy beautifuI business modeI. 434 00:35:06,840 --> 00:35:09,991 Yet not even the Medici were invulnerable. 435 00:35:10,080 --> 00:35:12,913 The bank suffered heavy losses 436 00:35:13,000 --> 00:35:16,436 as a result of over-generous loans to blue-blooded debtors 437 00:35:16,520 --> 00:35:20,274 who felt no compunction about defaulting on their obligations 438 00:35:20,360 --> 00:35:23,079 and telling the bankers to get lost. 439 00:35:26,960 --> 00:35:30,873 Bad debts - money owed by borrowers who go bust - 440 00:35:30,960 --> 00:35:33,428 are the perennial problem that any bank confronts. 441 00:35:35,840 --> 00:35:41,597 Yet for a time, it seemed as if modern bankers had solved this age-old problem. 442 00:35:41,680 --> 00:35:46,356 They really thought they were smarter than the Medici. 443 00:35:54,200 --> 00:35:57,670 Memphis, Tennessee is a long way from Florence. 444 00:35:57,760 --> 00:36:03,278 And the world economy has come a long way since the Renaissance. 445 00:36:03,360 --> 00:36:06,113 A crucial part in that transformation 446 00:36:06,200 --> 00:36:10,637 has been played by the spread of modern banking from its ltalian birthplace 447 00:36:10,720 --> 00:36:15,475 to a country where money has increasingly taken the form of easy credit. 448 00:36:16,600 --> 00:36:20,149 The United States has been built on borrowed money. 449 00:36:23,000 --> 00:36:26,834 But whereas the Medici tended to lend only to the relatively well off, 450 00:36:26,920 --> 00:36:31,198 until the present credit crunch at least, American banks seemed willing to give 451 00:36:31,280 --> 00:36:32,793 just about anyone a loan. 452 00:36:34,920 --> 00:36:41,712 Memphis is famous for blue suede shoes, barbecued ribs and bankruptcies. 453 00:36:42,840 --> 00:36:48,312 You can tell people here are a little... How shall l say it? ..a little sub-prime. 454 00:36:48,400 --> 00:36:53,110 You onIy need to Iook at the shopping maII for the seriousIy poor. 455 00:36:53,200 --> 00:36:56,431 And the ubiquitous no-friIIs eatery. 456 00:36:56,520 --> 00:37:02,356 Then there's a tax advisor who can teII you how to cIaim your Iow-income credits. 457 00:37:05,320 --> 00:37:09,996 A shop where you can borrow money on the equity you own in your car. 458 00:37:10,080 --> 00:37:15,154 And a pIace where they'II give you an advance on next week's pay cheque... 459 00:37:17,280 --> 00:37:21,034 ..not to mention a pawn shop the size of a department store. 460 00:37:24,040 --> 00:37:27,715 And finaIIy, when you've no possessions Ieft to pawn or to seII, 461 00:37:27,800 --> 00:37:29,870 there's just one option Ieft. 462 00:37:29,960 --> 00:37:32,872 And that's to head on down to ZLB PIasma 463 00:37:32,960 --> 00:37:36,794 where you can seII your own bIood for $25 doIIars a pop. 464 00:37:36,880 --> 00:37:39,633 TaIk about being ''bIed dry''. It's amazing reaIIy - 465 00:37:39,720 --> 00:37:43,918 an entire economic sector based on peopIe who are broke. 466 00:37:50,800 --> 00:37:54,190 ln some ways, it rather reminds me of the East End of Glasgow. 467 00:37:54,280 --> 00:37:57,955 Yet there's a world of difference between this world 468 00:37:58,040 --> 00:38:01,749 and the world where loan sharks extract their pounds of flesh 469 00:38:01,840 --> 00:38:03,558 from petty defaulters. 470 00:38:05,400 --> 00:38:09,598 Here in sub-prime America, defaulting on your debts is easy. 471 00:38:09,680 --> 00:38:11,477 Well, pretty easy. 472 00:38:19,600 --> 00:38:23,798 This is Richie. He's in the repo business - 473 00:38:23,880 --> 00:38:26,838 snatching cars from under their owners' noses 474 00:38:26,920 --> 00:38:28,797 when they haven't made their payments. 475 00:38:28,880 --> 00:38:35,433 He grabbed that boIt action, he went ''chh'' and I watched the rifIe sheII 476 00:38:35,520 --> 00:38:42,358 go in the barreI and he Iunged it towards me and hit me right here 477 00:38:42,440 --> 00:38:44,749 and aImost knocked me down. 478 00:38:44,840 --> 00:38:48,355 He said, ''Either you drop the truck or I'm dropping you.'' 479 00:38:48,440 --> 00:38:51,273 And I said, ''Yes, sir,'' and I dropped the truck. 480 00:38:51,360 --> 00:38:56,639 You know, you make it sound so attractive, maybe I... I shouId switch jobs! 481 00:38:56,720 --> 00:38:59,598 I teII you what, it's interesting. 482 00:39:03,640 --> 00:39:09,033 ln the bankruptcy capital of America, repossessing cars is a routine matter. 483 00:39:14,000 --> 00:39:16,673 BUZZ OF AUCTION ROOM 484 00:39:25,840 --> 00:39:28,957 $16,000... 485 00:39:29,040 --> 00:39:31,429 It's got the Ieather, the top... 486 00:39:31,520 --> 00:39:36,640 Each week, United Auto Recoveries sells 500 repossessed cars. 487 00:39:36,720 --> 00:39:41,316 The cars are auctioned off to the trade, ending up in the same car lots, 488 00:39:41,400 --> 00:39:43,391 to be sold to much the same people 489 00:39:43,480 --> 00:39:45,948 and, when they can't keep up with their monthly payments, 490 00:39:46,040 --> 00:39:49,350 repo'd and recycled once again. 491 00:39:50,480 --> 00:39:55,156 TechnicaIIy the Memphis repo men are simpIy doing what debt coIIectors do 492 00:39:55,240 --> 00:39:56,389 the worId over. 493 00:39:56,480 --> 00:40:00,075 The difference, apart from the sheer mind-boggIing scaIe of the thing, 494 00:40:00,160 --> 00:40:03,232 is the reIative ease with which the bad debts are wound up 495 00:40:03,320 --> 00:40:06,118 and the coIIateraI is soId off. For the debtors, 496 00:40:06,200 --> 00:40:10,352 there's virtuaIIy no sociaI stigma and nobody seems to be getting hurt. 497 00:40:10,440 --> 00:40:14,797 The big mystery is why the worId's most successfuI capitaIist economy 498 00:40:14,880 --> 00:40:19,078 is based on a foundation of more or Iess painIess economic faiIure. 499 00:40:25,880 --> 00:40:29,714 Here in Tennessee, when the house has been stripped bare 500 00:40:29,800 --> 00:40:31,870 and the repo man has taken your car, 501 00:40:31,960 --> 00:40:35,748 you end up in the hands of one of Memphis's bankruptcy lawyers, 502 00:40:35,840 --> 00:40:37,956 along with around 1 3,000 other people 503 00:40:38,040 --> 00:40:40,759 who filed for bankruptcy here in the past year. 504 00:40:40,840 --> 00:40:46,278 Of course that's one thing that's making you... Bumping your payments up so high. 505 00:40:46,360 --> 00:40:50,353 Every week, bankrupts gather here with their lawyers 506 00:40:50,440 --> 00:40:54,319 to hammer out deals with their creditors. There's even a fast track lane. 507 00:41:00,200 --> 00:41:07,515 In this case it's a mortgage and it's a car, or two cars. 508 00:41:07,600 --> 00:41:11,718 I can't see anything eIse in there that they're...they're having to pay off. 509 00:41:11,800 --> 00:41:15,588 - ActuaIIy there are three cars. - Three cars? 510 00:41:15,680 --> 00:41:19,434 The third car is... the neighbourhood titIe Ioans, 511 00:41:19,520 --> 00:41:23,877 has a... has a Iien on the car, they are hoIding the titIe. 512 00:41:23,960 --> 00:41:26,474 (NiaII) So putting this reaIIy simpIy, 513 00:41:26,560 --> 00:41:30,553 what were they supposed to be paying and what are they now paying? 514 00:41:30,640 --> 00:41:35,350 WeII, that payment was reduced from 241 . 1 1 ... 515 00:41:35,440 --> 00:41:37,749 - down to 107. - OK. 516 00:41:37,840 --> 00:41:38,909 Quite an improvement. 517 00:41:39,000 --> 00:41:40,069 Cutting their monthIy obIigations by more than haIf. 518 00:41:49,480 --> 00:41:57,068 From 1 996 to 2006 there were between one and two million bankruptcy cases a year 519 00:41:57,160 --> 00:42:00,516 in the United States, nearly all of them involving individuals 520 00:42:00,600 --> 00:42:04,036 who elected to go bust rather than meet their obligations. 521 00:42:07,120 --> 00:42:11,272 ln medieval ltaly - or in the Glasgow of my youth, for that matter - 522 00:42:11,360 --> 00:42:15,114 bankruptcy was seen as a disaster. But not here. 523 00:42:16,680 --> 00:42:21,800 In fact, this abiIity to waIk away unscathed from unsustainabIe debt 524 00:42:21,880 --> 00:42:26,351 and start again has been a defining characteristic of American capitaIism. 525 00:42:26,440 --> 00:42:29,796 There were no debtors' prisons here in the earIy 1800s, 526 00:42:29,880 --> 00:42:35,477 at a time when EngIish debtors couId Ianguish in jaiI for years. Since 1898, 527 00:42:35,560 --> 00:42:39,792 every American has been entitIed to fiIe for Chapter 7 - Iiquidation, 528 00:42:39,880 --> 00:42:43,589 or Chapter 13 - voIuntary personaI reorganisation. 529 00:42:43,680 --> 00:42:45,318 For rich and poor aIike, 530 00:42:45,400 --> 00:42:48,710 bankruptcy has become as much of an inaIienabIe right 531 00:42:48,800 --> 00:42:52,156 as ''Iife, Iiberty and the pursuit of happiness''. 532 00:42:56,040 --> 00:43:00,079 The theory is that American law exists to encourage entrepreneurship - 533 00:43:00,160 --> 00:43:03,436 to facilitate the creation of new businesses. 534 00:43:03,520 --> 00:43:08,514 And that means giving people a break when things don't work out the first time, 535 00:43:08,600 --> 00:43:10,318 or even the second time. 536 00:43:10,400 --> 00:43:15,315 The born risk-takers don't get wiped out as they learn through trial and error 537 00:43:15,400 --> 00:43:17,550 how to make that first million, 538 00:43:17,640 --> 00:43:22,270 because today's bankrupt might be tomorrow's billionaire. 539 00:43:24,160 --> 00:43:26,116 lt's a theory that seems to work. 540 00:43:26,200 --> 00:43:30,432 Many of America's greatest successes failed in their early endeavours, 541 00:43:30,520 --> 00:43:35,958 including the author Mark Twain, 542 00:43:36,040 --> 00:43:40,989 the comedian Buster Keaton, 543 00:43:41,080 --> 00:43:45,517 and none other than the great industrialist Henry Ford himself. 544 00:43:48,080 --> 00:43:50,036 All of these men eventually flourished 545 00:43:50,120 --> 00:43:54,910 not least because they were given a chance to try, fail and start over. 546 00:43:55,000 --> 00:43:57,992 For their part, the banks simply assume 547 00:43:58,080 --> 00:44:00,310 that a proportion of the loans they make will go bad. 548 00:44:00,400 --> 00:44:05,633 After all, most people going bankrupt owe relatively trivial sums. 549 00:44:05,720 --> 00:44:10,635 A Chapter 1 3 doesn't wipe their debts out, it just reschedules them. 550 00:44:17,880 --> 00:44:21,589 So it's a mistake to think, as Shakespeare's Antonio did, 551 00:44:21,680 --> 00:44:24,240 of moneylenders as mere leeches, 552 00:44:24,320 --> 00:44:27,312 sucking the life's blood out of unfortunate debtors. 553 00:44:32,480 --> 00:44:36,234 Credit and debt are the building blocks of economic development. 554 00:44:36,320 --> 00:44:38,993 But it takes banks to elevate that relationship 555 00:44:39,080 --> 00:44:42,993 beyond the tie between a loan shark and his hapless victim. 556 00:44:49,400 --> 00:44:53,279 It's onIy when borrowers Iike the ones on this GIasgow housing estate 557 00:44:53,360 --> 00:44:55,669 have access to efficient credit markets 558 00:44:55,760 --> 00:44:59,594 that they can escape the cIutches of the ShyIocks and the Ioan sharks. 559 00:44:59,680 --> 00:45:02,956 It's onIy when savers can put their money in dependabIe banks 560 00:45:03,040 --> 00:45:06,430 that it can be channeIIed from the idIe to the industrious. 561 00:45:09,360 --> 00:45:13,990 But wait, l hear you ask, if banks are the answer, 562 00:45:14,080 --> 00:45:18,073 how could so many have collapsed so spectacularly in the past year, 563 00:45:18,160 --> 00:45:21,038 throwing the financial world into turmoil? 564 00:45:23,280 --> 00:45:26,636 To understand why bad debts in places like Memphis 565 00:45:26,720 --> 00:45:29,154 could cause such chaos, you need to understand 566 00:45:29,240 --> 00:45:32,949 how the relationship between banks and borrowers broke down 567 00:45:33,040 --> 00:45:39,832 as loans came to be ''securitised'' and sold on to unwary investors. 568 00:45:44,280 --> 00:45:47,909 Once upon a time, being a banker was reaIIy rather boring. 569 00:45:48,000 --> 00:45:51,072 You Iived by the 3-6-3 ruIe, 570 00:45:51,160 --> 00:45:55,711 which meant you paid 3% on deposits, coIIected 6% on Ioans 571 00:45:55,800 --> 00:45:58,268 and were on the goIf course by 3 o'cIock. 572 00:45:58,360 --> 00:46:02,433 But in our time, banking became reaIIy rather too interesting. 573 00:46:02,520 --> 00:46:05,034 A whoIe series of financiaI innovations 574 00:46:05,120 --> 00:46:07,873 made it possibIe for common or garden Ioans 575 00:46:07,960 --> 00:46:10,076 to poor foIks in pIaces Iike Memphis 576 00:46:10,160 --> 00:46:13,277 to metamorphose into weird and wonderfuI things 577 00:46:13,360 --> 00:46:16,477 with names Iike ''coIIateraIised debt obIigations''. 578 00:46:16,560 --> 00:46:20,439 WeII, this financiaI aIchemy - turning Iead into goId 579 00:46:20,520 --> 00:46:23,273 or toxic waste into giIt-edged securities - 580 00:46:23,360 --> 00:46:26,477 was onIy possibIe because the ascent of banks 581 00:46:26,560 --> 00:46:29,632 was foIIowed by the ascent of the second great piIIar 582 00:46:29,720 --> 00:46:33,315 of the modern financiaI system - the bond market. 583 00:46:37,760 --> 00:46:43,915 And for an expIanation of how that came about, we'II turn to Mr Bond himseIf.