A while ago I started what was intended to be a series of posts detailing the causes of what I’m terming “The Great Crunch”. I was planning to discuss the second cause today – but have decided forests merit my attention just now. You’ve got to get your priorities right.
Nevertheless, as a bit of a trailer I feel I just have to draw attention to this Sky News story I just spotted on the handy syndicated financial news service provided by Yahoo!. Yes, those nasty “Banks Face ‘Unfair’ Mortgage Legal Action” as Sky put it (and if their ambiguity was deliberate then I applaud it).
Well, we now all believe banks are intrinsically evil, of course, but let’s read a little further. It turns out the noble David vs Goliath litigants took out somethings catchily called SAMS or “Shared Appreciation Mortgages” back in the ’90s. And now the silly Sids are squealing because this time they’re not happy with how the deal worked out. To be honest, I can’t even see why they’re upset, since they have apparently made money:
“The schemes, only available in 1997 and 1998 before being withdrawn from the market, allowed borrowers to take out loans secured against their homes, at a zero or reduced fixed rate of interest.
However, on repayment of the loans, they had to pay back an additional charge of up to 75% of the increase in the value of the property during the lifetime of the loan.
Their repayments ended up rocketing because of the sharp rise in house prices in the decade to 2007.”
The mortgagees, it seems, have been given free money (that’s what I term a zero interest loan), had the use of a property they presumably couldn’t otherwise afford for a decade or so, AND made a return of 25% of the increase in the value of the place. Now they’re suing because, as Kevin would put it, “it’s so unfair” – presumably compared to the absurd windfall profits made by other homeowners or some other course of action they wished they’d taken back in the day. “Aah, diddums”, I say. From Sky’s story there seem to be no allegation of mis-selling. The deal seems totally straightforward to me from a consumer point of view (and I’m not claiming special financial expertise here – I still don’t, for example, fully grasp why I would want to buy, for instance, “with profits” life and pension funds).
The point – which, as I say, I intend to develop further – is that – unless, of course, we want to experience never-ending financial crises – we have to somehow reach a state where individuals take responsibility for their own financial decisions.
It’s about weighing up individual interests against the general interest. Once you strip away the bonuses, the Goodwinesque hubris, and the Byzantine financial complexity, banks are simply collective institutions for managing money. Every dollar an individual takes from a bank undeservedly (or, indeed, deservedly) – whether as an unjustifiably (or, indeed, justifiably) massively inflated salary or bonus, through some court award against the bank, or, most significantly, through the writeoff of debt – must come from the other stakeholders in the bank. Taking the banks as a whole, that includes all of us – especially as, at the end of the day, the taxpayer has to pick up the tab when the sucker goes down.