Amid the turmoil of the 2008 financial crisis a myriad of events unfolded that the general public knew nothing about, writes New York Times reporter Andrew Ross Sorkin in a new book titled "Too Big to Fail."

Wall Street fell from the dizzying heights of good fortune to calamity in a matter of months. To a large degree it's still to early to tell whether financiers and politicians involved made the right choices.

"At its core 'Too Big to Fail' is a chronicle of failure -- a failure that brought the world to its knees and raised questions about the very nature of capitalism," writes Sorkin in his behind-the-scenes account.

He spoke with Reuters before giving a lecture at the London School of Economics on Thursday.

MacroScope is pleased to post the following from guest blogger James Carrick.  Carrick is economist at UK fund firm Legal & General Investment Management. He says here old patterns of lending are unlikely to return and that this means slow growth in developed countries.

"Despite £175 billion of quantitative easing, bank lending in the UK remains weak, threatening to restrain the economic recovery and equity market rally. 

Policy makers in the developed world have been working overtime to encourage banks to lend at the ‘normal’ levels experienced during the past decade. However, these "normal" levels are no longer realistic. The factors which contributed to the secular rise in debt over the past decade are now reversing. Populations are ageing, interest rates can’t go any lower and sub-prime lending is over.

As a result, higher levels of savings (where consumers pay down debt) and lower spending will weigh on the pace of the recovery.

This is not to predict a double-dip recession. Instead we are probably in store for a more subdued period of growth next year as households can no longer borrow money they don’t have, and unemployment remains high.

On the flip-side, while consumers in the developed world are still suffering a hangover from the credit-crunch, the debt party in many emerging economies is still in full swing.

This suggests that companies with exposure to the developing world will fare better."

In the blink of an eye it look as if the City is “booming” again after Barclays and HSBC announced buoyant investment banking earnings on Monday.

Both banks were hit by a surge in bad debts as the recession took its toll on borrowers, but analysts said that resurgent debt and foreign exchange trading and market share grabbed from troubled rivals fuelled the largely positive results.

Barclays announced an eight percent rise in profits for the first six months of the year to almost three billion pounds, while HSBC reported profits of the same amount, though this was half what they made during the same period in 2008.

The results have led to speculation that some City workers will once again receive bumper bonus packages just months after the banking sector was bailed out by the taxpayer.

Barclays’ Chief Executive John Varley defended the system of bonus payments by comparing his staff to highly-paid footballers.

“The football analogy certainly goes some way to I think [to explain bonuses]….There is simply no higher priority that to ensure we filed the very best people,” said Varley. “That in a sense is exactly the same as a football manager if they are going to win. Our obligation is to ensure we pay appropriately.”

Which begs the question of whether you would rather watch Steven Gerrard scoring a goal or pay a visit to your local Barclays branch manager.

While Varley juggled his football metaphors, Stuart Gulliver, who runs the investment bank at HSBC, used a different analogy, comparing the bank bonus culture to the Hollywood studio salary system.

“If a foreign exchange trader makes a deal then they know two days later how much they made,” said Gulliver. “If it’s a £5m profit, that is something we can count, we can see it, it’s real. And they are part of a successful team.”

Barclays and HSBC did not receive government handouts but all the banks benefited from state intervention that used £1.2bln of taxpayer funds to prop up the banking system.

Do you think it is right that big bonuses reappear so soon after the height of the banking crisis and while homeowners, savers and small businesses are still struggling?

It says something about the current world that a new economic indicator is about to be unleashed by the Bank of England and it basically tells you whether banks have been doing what they are supposed to do -- lend.

The first Trends in Lending report is due out on April 21 at 0830 GMT. Always nice to have a new indicator, but this one may get a bit more attention than would have been the case a few years ago. It is designed to provide up-to-date information about bank lending to households and businesses.

Consumer groups, regulators trade bodies, the BoE, the UK government and lenders themselves will draw up the report under the rubric of something called The Lending Panel -- which a cruel cycnic might say sounds a bit like a high-interest loan shop.

Clearly, the purpose of the report is to show whether banks have been passing on the ultra-low interest rates that the BoE has been handing out.  What do you think it will show?

By clamping down on credit, Britain’s newly cautious banks are making collapse almost inevitable for many small to medium enterprise (SMEs) who need a financial cushion now, more than ever, as suppliers and customers struggle to pay bills as the economic downturn bites.

Small businesses in Britain, which employ over half of the private sector workforce and annually generate some 3 trillion pounds, typically depend on loans for working capital to tide them over during lean spells.

The latest research from the Bankers’ Automated Clearing Service (Bacs), which processes direct debits for banks, showed a sharp rise in overdue payments, up 40 percent to 25.9 billion pounds last year from 18.6 billion in 2007.

Bacs, which found that the national average for outstanding payments increased 25 percent to 38,000 pounds in 2008, said SMEs waited an average of 41.5 days beyond agreed payment dates for invoices to be settled as firms — especially those in the manufacturing and service industries — struggled with cash flow problems.

With state-sponsored support schemes failing to deliver cash where it’s needed will dwindling bank lending continue to put Britain’s small firms in danger?

Britain could begin a telling exercise in classical monetary theory on Thursday as the central bank gets set to test a newly minted policy of “quantitative easing”.

In an effort to pump more money into the financial system and encourage banks to get lending again, the Bank of England has been given the green light to basically create more money.

 It will use the electronic funds to buy short- and long-dated gilts and a host of commercial debt in the hope that that will free up other capital to the banks, allowing them to lend more.

At root, the exercise is based on MV=PT, known as the Fisher equation of exchange and a mainstay of Keynesian monetary theory.

In the equation, M is the quantity of money and V is the velocity at which it travels around the economy. P stands for the general level of prices and T equals the number of transactions performed over a given accounting period.

In theory, V and T are more or less stable, meaning that all other things being equal, the amount of money in circulation has a direct impact on prices and/or the number of transactions.

By pumping more M into the economy (or at least making more M available), the central bank is hoping that economic activity will pick up (T will increase) and the economy will be reflated (P will pick up). In theory.

The problem will come if those who have more money made available to them — the banks, commercial borrowers, companies and ultimately individuals — end up sitting on it rather than using it. That would effectively mean that V falls.

That has always been the unquantifiable in monetary theory as precisely measuring the velocity of money is extremely difficult, not to say open to interpretation.

If it works, quantitative easing will push up M, P and T and a corner may be turned in the credit crisis. Maybe. If it doesn’t, then M may go up, but V, T and P will all go on falling, causing More Very Tricky Problems indeed.

President Barack Obama had barely settled into in the White House before he was happy to admit he had “screwed up” over one of his choices for a cabinet job after Tom Daschle withdraw his nomination as health secretary over an income tax controversy.

Even Britain’s leading bankers were moved to apologise to parliament last month over the sector’s indiscretions in the boom years.

But sorry is clearly not a word in Prime Minister Gordon Brown’s political lexicon, even though he was Chancellor for 10 years and arguably his “light touch” approach to the economy created the environment for  the current economic mess we are in.

Brown is happy to talk of the need for humility, but that’s as far as he will go. He reminds you of a cyclist caught doping, endlessly pleading their innocence, despite all the evidence to the contrary.

Whether Brown believes an act of contrition is simply unnecessary as he has done nothing wrong or that to say the word “sorry” would provide the opposition Conservatives with a stick to beat him mercilessly ahead of a general election is unclear.

Commentator Jonathan Freedland in Wednesday’s Guardian makes the case that until Brown admits some degree of culpability for Britain’s economic woes the Labour Party will not get a hearing at the next election.

Why are politicians so loath to say sorry? And could Brown revive his electoral hopes if he does accept fault for Britain’s economic crisis?

Royal Bank of Scotland’s controversial former Chief  Executive Fred Goodwin once memorably referred to the  consolidation of smaller British lenders as “mercy killings.”

Goodwin was speaking in 2001, when he could still bask in the glory of RBS’ audacious acquisition of larger rival NatWest the previous year, a deal that set the standard by which all banking takeovers were judged.

How times have changed. Goodwin has gone, quitting after the credit crunch forced RBS to surrender a majority stake to the government in exchange for a 20 billion pound taxpayer-funded bailout and write down billions in relation to its acquisitions.

To make matters worse, RBS on Thursday reported the biggest loss in British corporate history, and said it had negotiated further state support which could boost the government’s stake in the bank as high as 95 percent.

With the banking sector still facing highly uncertain prospects as recession weighs on the economy, has the time come to administer a “mercy killing” to RBS, and formally nationalise it?

A bit like asking turkeys to vote for Christmas, parliamentarian John Mann has called on the likes of tennis player Andy Murray, equestrian star Zara Phillips and motor racing great Sir Jackie Stewart to scrap their sponsorship contracts with the Royal Bank of Scotland.

Bleeding red all over its accounts and shedding thousands of jobs, the struggling Scottish bank has been heavily criticised for doling out bonus payments to staff despite receiving billions of pounds of state aid.

So the relevation RBS has splashed out 200 million pounds on sports sponsorship - the bank also has a promotion deal with the rugby union Six Nations tournament - has come at the worst possible time.

“That level of excess clearly can’t be justified,” said Mann. “Not one ambassador, but loads, not short-term contracts, but long-term contracts, not small amounts of money, but large amounts of money.”

“I think it would go down very well with the British public if some of them were to cancel their contracts. Some of them would become real heroes if they did. I think they need to consider that this is borrowers’ money we are talking about.”

Should Murray, Phillips and Stewart scrap their contracts and should banks be sponsoring sports stars in the new frugal economic climate?

“If you think you want to advance on this, we will deal with the competition issues” — so said Gordon Brown to Lloyds Chairman Sir Victor Blank last September, sweeping away the one big problem to a merger between Lloyds and HBOS.

At the time, Brown said the government had acted quickly and decisively in removing competition concerns and prodding the merger forward, despite concerns about the risk that Lloyds was taking.

Now the full scale of HBOS’ losses — 10 billion pounds in 2008 – has become known and the share price of the merged bank has taken a dive. Fears are growing that increasing fears that the government will have to pour in more money on top of the 17 billion pounds it has already spent to acquire 43 percent stake — or even nationalise it altogether.

Opposition parties have been quick to claim that Brown pushed through the “shotgun wedding” of a healthy, prudent Lloyds with the toxic HBOS to avoid the embarrassment of having to nationalise the Edinburgh bank.

But several analysts have noted that the two banks had long been talking to each other about a merger and that all Brown did was facilitate it.

How much blame do you think rests with the government in the Lloyds affair?