Hope springs a leak

Few people knew about it, but until last month more than 1 trillion dollars in risky mortgages were ultimately being financed by loans that were being held for a matter of only days at a time. That might sound strange to the financially uninitiated. And now, even among financial types, the whole arrangement is suddenly on the decline.

Welcome to the current credit crunch in the world financial system.

Household banking names have had to turn out their pockets to finance the original mortgage obligations. Many of these mortgages were made to borrowers with slight chances of meeting their monthly payments.

By the beginning of September, several banks hit the panic button and said they couldn't afford to pay. Central banks around the world have had to step in to keep the loans afloat.

You might be asking how a bank could get caught out funding 30 year mortgages using loans that last only days?

The banks drove into this mess at high finance speed using what are called Structured Investment Vehicles, or SIVs. SIVs are offshore investments, virtually unregulated, for special purposes.

The banks earned good money from these racy little investment vehicles by selling the loans on to buyers in the so called commercial paper market. But commercial paper must be re-negotiated every few days, and that's where things went pear-shaped in August. No one wanted to finance the loans.

Is all this sounding far away form your everyday? Overly risky US mortgages. Offshore investment vehicles. And a rescue package from central banks. Maybe. But closer to home we have people camping out overnight to be first in line to withdraw their savings from UK building societies.