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Andrew Ross Sorkin wonders what it is exactly that causes financial crackups. Crazy proprietary trading, maybe? Why, no. It’s the lending!

Why do we have financial crises? Why do banks lose money?

If history is any guide, it hasn’t often been the result of speculative bets. It has been the result of banks making loans to individuals and businesses who can’t pay them back.

Yes, standards became so lax that buyers didn’t have to put money down or prove their income, and financial firms developed dangerous instruments that packaged and sliced up loans, then magnified their bets with more borrowed money.

But it often starts with banks making basic loans. Making loans “is one of the riskiest businesses banks engage in and has been a major contributing factor to most financial crises in the world over the last 50 years,” Richard Spillenkothen, former director of the division of banking supervision and regulation at the Federal Reserve, wrote in a letter to Politico’s Morning Money on Monday. [Emph.added]

Now that he mentions it, it was aggressive LDC lending that walloped the money-center banks in the early 1980s, and then big-time energy lending that wiped out the Texas banks a few years after that. Then in the early 1990s, the after-effects of large-scale CRE lending nearly brought the whole system down. Glass-Steagall was still the law of the land the whole time, remember; there wasn’t even a rogue trader in sight. Am starting to think the Volcker rule may not be a silver bullet, after all. . . .