Friday, 16 March 2012

Some lessons are never learned....

I received a phone call this morning from someone I know very concerned. They had received a loan agreement from a high street bank, and it was just awaiting signature and return.

So I popped round, and looked at the agreement, which was badly printed, and had an offshore number as part of the address. This looked very strange,and when we tried to contact the freephone number it was unavailable.

Therefore, we rang the office of the bank my friend has an account with. After much tooing and froing, and misunderstandings, we finally got hold of the correct department. The matter was quickly cleared up, and what had happened was that because my friend had kept up to date with the payments on a previous loan, which is nearing its end, they just sent out a new one. My friend was advised to just throw it away and think nothing more of it. Of course, the bank could have avoided this problem by just including a covering letter explaining what this was all about, but it seems they have been taking lessons in communication from Andrew Lansley.

As you can imagine, this was all a relief, but it does demonstrate a much wider problem. We have been going through a severe financial crisis over the last few years, brought on by the behaviour of banks and other financial organisations, arguably the behaviour of governments, and the excessive debt levels of the man in the street. As Barack Obama repeated often during his 2008 election campaign, Wall Street gets a lot of the blame, but Main Street has played its role too.

Credit became easy to get, not only from banks but from other sources, and the so-called 'sub-prime' mortgages were a timebomb waiting to explode. I won't go over the ins and outs of the crisis, as they have been explored ad infinitum, and will be debated for years to come.

My point is that despite everything that has happened, and the economic and political consequences the banks do not seem to have learned their lesson. We have had a lot of discussion in recent months over banker's bonuses, and how those at the top often seem more concerned about their own pay packets.

But as I have already alluded to, access to easy credit, and the huge amounts of personal debt, have also been prime contributors to the problems we are now enduring. So why are banks not only offering unsolicited loans to account holders, but with the base rate at 0.5% (which has been in place for some three years now, and not just since the coalition came in, despite what David Cameron says) but have APR's of 19.1%?

Unfortunately not everyone is in the position of my friend, who is determined not to acquire more debts, but so many out there may feel they have no option but to take these on. Therefore, we are in severe danger of just going round in circles, and building up billions in personal debt all over again.

Incidentally, government's don't seem to learn particularly well either, as Labour's quantitative easing had nowhere near the stimulating effect it should have, and the coalition are just pumping more in. The banks just sit on it and boost their reserves, instead of lending it to businesses so they can expand and create jobs.

So the same set of circumstances that caused the initial crisis are in danger of being repeated, as banks attempt to tempt customers with easy credit at high rates of interest, and the government offers 95% mortgages. Hopefully this will spur the home buying market back into action, but it could also be storing up more problems down the line.

As ABBA so wisely sang in 1973, 'The history book on the shelf, is always repeating itself...,' and if banks especially don't do something to change their behaviour, then we could all be heading for a second financial Waterloo.

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