Driving past Northern Rock’s Dublin office just off Harcourt Street yesterday, I thought the queue of concerned depositors is reminiscent of scenes from the Great Depression. Hopefully, the customers who were lined up outside the banks will get their money out. Despite the panic, things look reasonably positive. But, what a shambles.

Where do you start to explain the Northern Rock debacle? In the old days it was simple: if a bank got into difficulties it was because depositors believed that something was fishy with the management — they might be trousering the deposits and spending them on speculative assets that were prone to crises. Now, however, with global markets interlinked in a 24/7 world of enormous capital markets, the security of your deposit can have as much to do with geo-political events as bad management.

This new interconnected world also means that events in one part of the world can have bizarre and worrying effects on seemingly unconnected places. As a result, bizarrely, the roots of the Northern Rock crisis and the subsequent falls in the stock prices of all Irish banks can be sourced in the most memorable event of this century.

Where were you when you heard about the Twin Towers? Did you ever think that one of the most unexpected impacts of the September 11 attacks would be the explosion of hire-purchase trampolines in the suburbs, deposit crises and ridiculous house prices in Portlaoise? Strange as it sounds, there is a direct link and here’s how it happened.

Every time you fill up at the pump, do you ever think about where the cash goes? Obviously, much of it ends up in the hands of the oil producer after all the others take their cut, particularly the tax man. Since the attack on the Twin Towers, and particularly since the occupation of Afghanistan and Iraq, the price of oil has increased from $23 peaking above $80 a barrel. At the time of writing it is $78. Once more, Arab oil producers benefit from a huge windfall as millions of Western drivers hand over cash to the sheiks. This is Osama’s handiwork.

The best way to gauge just how much of your cash has ended up in the Gulf as a result of Osama’s oil boom is to look at the foreign reserves of the region. The IMF calculates that the balance of payments of the Gulf went from a $30 billion surplus on the eve of September 11 to $212 billion last year. The crucial oil-trade balance has rocketed from $159 billion to $451 billion. This is your cash, and the cash of every Western punter and company that depends on oil for our daily existence.

But because the Gulf states are small places, they can’t absorb all this cash and the money has to go somewhere. It can’t all be spent in the Gulf. Also, given that the atmosphere in the US is one of overt suspicion and barely concealed hostility towards Arabs, especially Saudis, the recycled cash is not going back to buy Manhattan penthouses for rich Arab playboys. Not surprisingly, many Arabs have taken the hint and moved themselves and their money back home, with the result being huge price rises and rampant speculation in property in the Gulf, leading to the extraordinary emergence of Dubai out of the desert. This new metropolis is sucking in workers from Bangladesh and Pakistan, hookers from Russia and money from investors reading the property ads at the back of the ‘Sunday Independent’.

Because the Gulf states have pretty modest economies (Saudi Arabia is a smaller economy than Denmark), the bulk of the petro-cash, as happened in the 1970s, has gone back out into the world economy, looking for a profitable home.

All this recycled cash has had the effect of keeping world interest rates lower than they would otherwise be. As well as having old Germans to thank for our lower interest rates, Ireland has to acknowledge Osama’s role in the liquidity bonanza of the past few years. His attack on the Twin Towers, triggering the invasion of Iraq, has ensured that a wave of oil money from the Gulf is currently washing over us.

Irish banks and the likes of Northern Rock have been watching these developments and have gone out in the past two years, borrowing Arab money and then lending it out here to finance the last phase of the property boom which is now peaking.

Figures from the Central Bank reveal that our dependence on this foreign money is now verging on the addictive. Over four euros in every 10 lent to you and me is now borrowed directly by the Irish banks from foreigners. Who says we’re not living beyond our means? We are now hooked on oil money.

The extremities of the Irish housing market were receiving cash, not because they are great investments, but because the surplus cash has to find a home somewhere.

Ultimately, the wisdom of the investment is based on the underlying strength of the system and the ability of banks like Northern Rock to lay off this risk.

Like a bookie, the banks lent the money to people who wouldn’t normally get money in a month of Sundays. They then rolled all these loans into one special product and sold it on to the international financial markets.

As long as the people in places like Portlaoise were repaying these mortgages, the financial whiz-kids thought that they were getting money for nothing. These new financial instruments are called “mortgage-backed securities”. The underlying assumption was that people do not default on their mortgage.

So Osama’s oil money was recycled via new housing estates in Laois to London and Wall Street. Northern Rock were therefore not financing their mortgages out of deposits as was the traditional way. It was basing its ability to continue financing new business on the appetite of financial gurus for these so-called mortgage-backed securities.

In August, following widespread defaults on mortgages in the US, this market seized up. Contrary to what the banks thought, hard-pressed families do in fact default on their mortgages. When they did, due to higher interest payments and unemployment in the US, the financial markets ran scared. They ceased to finance the likes of Northern Rock, who were playing this game and the bank found itself with a serious credit crisis. It applied to the Bank of England for an emergency loan and the ordinary depositors smelled a rat.

The Northern Rock fiasco reveals just how precarious the international financial system is. Everything is based on a huge confidence trick, which, if exposed, can come crashing down around ordinary people who have no idea what is going on behind the scenes.

Somewhere in a cave in Pakistan, a frail Saudi Arabian fanatic must be smiling. Because, whether it was his intention or not, Osama has succeeded in undermining the Western infidels exactly where it hurts — in their pockets.

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