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Bankers: People Who Help Us

My 5-year-old son's new topic at school is 'People who help us'. His teacher asked the children to name occupations of people who help us. My son's answer was 'bankers'!! Bankers do help us - they provide very useful means of payment and payment systems as well as channeling funds from those who have capital but no productive opportunities to those who have productive opportunities but lack the necessary funds.

One of the results of the banking crisis is that banks contracted their lending to businesses and it appears that UK banks are still doing it (click here for story). One of Ben Bernanke's key insights into the Great Depression is that banking crises push up the cost of intermediating funds, and that this has a devastating effect on the macro-economy (paper available here). What, if anything, can the UK government do about this state of affairs?

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