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No actual cash - government just sell bonds with a fixed rate of return.
Building soceities (rather the subsequently bankrupt ones!) borrowed money off each other (and american banks) using mortgages as security. As another poster said - lending money they have borrowed off someone else, as soon as the mortgages in USA and here started to default, it was evident that the security was more or less worthless and banks stopped lending to each other causing the 'crunch'.
