Sure, banks loaned out money, that's how they made money, by investing prudently. Banking wasn't an exciting profession, it was, in fact, a staid and boring job.
Somewhere down the line bankers started looking at all that money just lying around being secure and thought how much more fun they could have if they worked in a casino. Rather than quit Lehman Brothers and find a job at Bellagio they decided to turn their banks into betting parlors.
As any gambler knows smart casinos work like banks used to. They rig the games to insure a small, prudent, safe profit. At a casino, being the bank is the only safe bet. But that was too boring for the bank bankers, they didn't want to be casino bankers they wanted to be casino gamblers. In the United States, bankers went on a betting spree and lost their shirts. They then went crying to their rich Uncle Sam demanding he cover their debts.
European bankers saw the fun and decided to play too. Now we are witnessing again what once was impossible, the biggest banks don't have enough money for their day to day operations and nobody will loan them any money. Only Europe doesn't have any rich uncle to bail them out.
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