On Thu, 17 Sep 2009 20:44:23 +0100, Roderick Stewart wrote:

In other words, selling bits of paper they knew to be worthless.

Yes, of course -- why do you think banks and other financial institutions
are so keen to sell on debt? It is called hedging the risk, or
as some might say, distributing or even sharing (as in passing on)
the future losses to others.

If you or I did this, it would be called fraud, but somehow the big
financial institutions can dress it up in fancy language and get away
with it.

See, for example,

http://www.amazon.co.UK/Hedging-Instruments-Risk-Management-Derivatives/dp/0071443126

But remember that the whole financial system is built on perception and
trust -- how much is that GBP 10 note in your pocket actually worth, or
that stock certificate for 100 shares in Northern Rock plc?

One day the piece of paper is very valuable because others are prepared
to exchange it for lots of other pieces of paper or digits in a computer
database, and sometimes the item has even less value than the paper on
which it is printed.

Talking of digits in a computer database, do many banks have the active
account balances stored in nothing more than magnetic or optical media
or the last printed statement?