Throughout the 1990s I resisted the change in banking culture. Then with time I began to wonder about it. I considered that if the new financial whiz-kids could handle their elaborate models then maybe fair enough. Their innovations were effectively widening the credit franchise to include almost anyone who wanted to be part of the consumer gravy-train, whether buying a house, a holiday, a car or an ipod. Economic prosperity was booming greater than ever and it seemed to be working. I had no good argument to counter. Throughout these boom years my prospects were in the dust-bin. I was no exemplar. It was a reluctant hats off to the kings of capitalism who knew how to keep a modern economy buoyant. If their instruments were endlessly complicated then what of it. As long as somebody somewhere knew what the deal was, and I assumed somebody somewhere did, then fine. I started to think that maybe theirs was not such a bad philosophy after all despite my contempt for the changes and their crushing effect on me personally.

So what happened? Was it that the bankers lost their bottle and reverted to type? Did they go back to being the conservative, risk-averse, salaried safe-players they had always been at heart? Maybe their true selves got scared, thought the losses unsustainable then bailed and ran for cover. It certainly didn’t take long for the snowball of decline to get rolling. One thing lead to another and before long an avalanche. When the complex instruments were too complex and the deals too toxic it was only a matter of time before the house of cards collapsed in on itself. Perhaps my original scepticism had been more on the money than I’d thought.

But still I wonder. Contemptible though these exploits of recent times were, maybe the innovations were sound enough had bankers themselves been able to show some backbone and finish what they started by seeing their innovations through and dealing with the concurrent losses. One of the main determinants of the credit crunch when it came was banks stopping lending to each other. By turning on themselves they brought about a cascade of chain reactions with catastrophic effect. Had they kept the balls in the air with mutual support the many otherwise functioning institutions (from Woolworths to Lehman) would not have subsequently collapsed.

Bankers are not entrepreneurs. They are too abstract for that. Traditional bankers are, quite rightly in my view, more like civil servants. They should be guardians of the system and stand outside of it. Like referees they don’t play the game. They should preside over it and keep score. Moving from their natural habitat was a pretentious pose. They were pretending to be thrusting risk takers, behaving like the other businessmen and capitalists they so admired. They pretended they were selling products. The expression “financial product” became a widely used term. Its use was pretentious because a loan is not a product. This is a category mistake. A loan is an agreement. Banking is a service. It is a public service more in common with a utility than retail. This change of identity to a sales culture was a change too far. Retail attitudes, where the general rule is to sell as many units as possible to anyone who wants to buy, was applied to banking. This was a nonsense in that you are potentially selling your so called product to people who can't buy it. It would be the equivalent of selling a car to those whose cheques are liable to bounce. At this point the sale has been lost not gained. The loan is no longer an asset but a liability. To use financial engineering to disguise that fact is seriously stupid and arguably fraudulent. The selling game became so preposterous that you would even see banks with shop windows advertising “loan sales” as if there was a whole stock of them back shop waiting to be shifted.

When someone like me with no knowledge of finance whatsoever knew this was suspect, then surely the old timers, the bank managers of convention, must have felt so too. But they were pushed aside in favour of the younger guns who were beating the new path. It wasn't so much the idea of financial innovations and easy credit that was dubious. That was simply progress and change and it worked for a while. The problem was that the institutions with their innate conservatism couldn't handle the scale of it. That, mixed with their ignorance. Few people in the system understood the complexity of the new instruments being fashioned.

To be philosophical for a bit, it seems that at some point money needs to represent something tangible and concrete, whatever that tangible entity should be. It may have originally been gold where the promissory note represented actual gold left for safe-keeping with a trusted party. The note was a voucher for the fact that gold had been deposited and left for protection. The keeper then issued the note as a voucher. The vouchers began to have value in themselves because of what they represented and so money itself appeared to gain an intrinsic value beyond what it represented when, empirically speaking, it has none. It is mere paper and plastic. It is what is embodied on the paper and plastic that has the value. What is embodied is an agreement between parties and so the reality of money is its relational nature.

Agreements are what is at heart of money. When they talk of “financial instruments” what are they instrumental in doing? They facilitate transactions. And the basis of a transaction is an agreement. Money is therefore a relational concept. At its core are human relationships. Money is about interaction among parties. It is an enabler. It is not a thing. It is not real in the factual sense. The coins, paper and plastic have no intrinsic worth. They are representations of something agreed, something relational and something psychological.

Having no innate material value, unlike gold, money can be infinitely produced. It is itself a “derivative” meaning that it “derives” its value from something else. It's value is primarily psychological and it was a psychological change that brought about the system failure of 2008. Although the new bankers in departing from the traditions seemed to have scant idea what they were doing it seems that virtually no one really had. This is often so with innovation. There is always an element of blind advancement in the hope things will work out.

Whatever was behind the economic boom of recent times it did work for a while. It may have been simple insecurity, ignorance even about what processes were being undertaken, that put an end to one of the longest growth periods in history. At that point the old conservative voice of banking raised its voice and was heard. Its anxieties prevailed once again as fear took over from greed and brought the whole thing to a stop. Maybe there was nothing inevitable about this outside of psychological determinism but that's inevitable enough. After all is said and done money exists in people's heads not in their bank accounts.