5 Sep 2011, 9:32am
economy:
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  • Bankers say don’t mess with us – classic special interest pleading

    Another day, another Mandy Rice-Davies moment. Our bankers seem to be getting their mates on the case of helping them avoid the consequences of their actions. The Item club is warning of all sorts of doom and destruction if we swap universal banking for investment banking and retail banking. Well, actually they say we’ll lose 0.3% of GDP.

    Now I’m not so sure that’s a bad deal. We lost an awful lot of GDP when it all went titsup in 2008, so perhaps a little bit less in exchange for not having a near death experience might be okay. I think Vickers is tackling the wrong thing. Instead of creating a general form of the Glass-Steagall Act, howsabout making FSCS compensation conditional.

    If a bank wants to offer an account protected under the FSCS then it has to operate as a retail bank and ringfenced. No compulsion, but then strip FSCS compensation from the likes of Barclays and the rest of the BSD brigade.  And force them to print a health warning on all their ads in no less than 8pt type for a magazine ad to the effect of

    This account is not protected by the FSCS. You may lose all your money if we screw up like we did in 2007/8

    and print this on the bottom of every statement, email and other bank communication. Widows and orphans will go with the retail banks, and the sort of people that were attracted to Icesave will go with Barclays and their ilk.

    Retail savers don’t need a universal FSCS protection scheme. We just need the option. I’m happy to save in a shares ISA, knowing that I could lose most of it in a market crash. However, I’d like to have somewhere I could park cash without the same feeling that it could all die quietly in the night. I don’t expect cash to give me a return, I’d just like to find it still there when I come back for it.

    Others of a more racy disposition might want to take their chance with Barclays, and presumably be compensated with more interest. As long as their noses are continually rubbed into the fact they are giving BSDs the use of their money and they have a history of good returns combined with total annihilation then that’s fine. Consumer choice is what capitalism is meant to be good at, so if Barclays and their buddies want to gamble with their customers cash then let them – as long as the customers are easy with the risk.

    8 Aug 2010, 5:47pm
    economy:
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  • Banks Don’t Make People Bankrupt, People make People Bankrupt

    There was a bizarre piece on Woman’s Hour today, asking how is it that so many women are going bankrupt nowadays.

    One of the reasons advocated is that more women are exposed to the economy by being wage earners etc and that part of the argument is fair enough, there are more in the line of fire.

    Then we had Alexis, who got herself into £31,000 worth of debt. Let’s take a look at some of her reasoning:

    Jenni (interviewer) “How did it [your debt] get so high”?

    Alexis “It got so high because I was able to borrow so much money”

    WTF? Can this lady run safely with scissors, is she allowed to cross the road on her own?

    Alexis “unfortunately, nobody put the brakes on me except myself”

    Jenni (incredulous tone of voice) “Hang on, what were you spending it on?”

    Alexis “Anything, I genuinely was shopping constantly, I had this attitude that life is short, and if I wanted it I should have it, and we do live in this society where we are told, ‘Look at all these worderful things you can have’ look at all these wonderful things these celebrities have got, and why don’t you have it and if you can’t afford it just borrow the money”

    Prof Sheila Crispin then goes on to say that people think that “if the bank is prepared to lend me 20,000, then I must be able to afford it.”

    Since when did adults get infantilised in this way? There are some things that have hidden risks that are hard to gauge and quantify. But there’s not much that is hard about spotting the risk of borrowing £1000 when you can’t see a way to paying it back.

    I’m not talking about to people unfortunate enough to lose their jobs, or have other unforeseen financial events catch them out. This was a woman who sounded coherent, reasonably intelligent and who had finally seen the error of her ways. But was she raised by wolves? Why didn’t her parents teach her the basics

    all advertising is a story designed to make you want to spend

    I’m sick of people of both genders blaming the banks for making them overspend. Banks have made their own mistakes, and been greedy on their own behalf, but they aren’t a conspiracy to make us overspend. They held up a mirror to our own greed and lack of responsibility. We cannot blame the mirror if the ugliness of the reflected image disturbs us. A failure of macroeconomic policy and regulation made this worse, but nobody had their arm twisted by a banker in a balaclava holding a gun to their head, saying

    borrow this £31,000 or we shoot your husband and kids

    It just didn’t happen.

     
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