All language subtitles for The Ascent of Money - 1of6 - Dreams of Avarice - Ch4 2009 DVDRip XviD AC3

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.