To most people, even before governments, banks seem to represent all that is honest as an institution considered a pillar of society. Unfortunately, the banks are run by people, and without correct checks and balances are introduced – and with appropriate powers to police them – they will do all they can to usurp the rules n the name of profit. Forget deliberate fraud, I think sufficient powers are already in place to make such efforts very difficult.
But – look at Northern Rock. The first British bank to have a run on its branches in the UK for over 100 years – and now it has been nationalized, it is going to cost every UK taxpayer around £ 3,500.
OK, so the Managing Director certainly had a grandiose vision to take his bank, a small, Northern outfit, to become a rival to the other Big Five in the UK. No problem there with his ambitions plans really, as long as he took no chances. But he did not, and the Financial Services Authority (FSA) did nothing over many years to check his activities.
But just look at the FSA – 3,000 staff to police all the financial transactions of the whole London Institutions, and with what was it – 5 people – assigned to one of the largest financial gaffes in UK banking, no wonder that they (the FSA) are setting up an internal inquiry to see what they did wrong.
But once again, look at the much larger banking scene, as was discussed in great depth on Channel 4's Dispatches program a few weeks ago – headed 'How the Banks Bet with Your Money!'
Hardly any bank in the UK, or on Wall Street, escaped this top financial investigator's icy blast. And you know the strange thing? He warned the banks, even had a breakfast meeting with the Bank of England. And the Bank's response – there are sufficient checks in place (regarding sub prime mortgage lending as it happened). They were much more interested in making their million pound bonus checks than to look too deeply at the underlying problems – problems that could nearly wreck the banking system, and the whole Western economy.
So much for the top levels of banking! Now let's look at a problem much closer to the hearts of every small property investor in the UK.
These small investors all took out mortgages with most of the UK, and many US banks, to finance their purchases. All of these people 'assumed' that the banks were pillars of society. If the investors took out a mortgage with the backing of an RICS (Royal Institute of Chartered Surveyors – another 'pillar of society') then they thought that they stood a pretty good chance that their investments were secure, and not only that, so did the lending banks.
Now, for various reasons not to be discussed in this article, where a property had got an RICS valuation of say £ 315,000 in 2004/5, it was astonishing when they were revalued in 2007 to find the actual value closer to £ 100,000. Especially when you look at Nationwide statistics that show in 2004 house price inflation was running at over 12%, declining briefly to 2% in 2005, ramping up to 10% in 2006 before starting its downward slide at the end of 2007.
As all of these investors (and we are aware of at least 350 similar property transactions from one particular property developer) had used law firms (another pillar of society, regulated by The Law Society – yes, another pillar …), you would have thought that the banks would have made a beeline for the other 'Pillars of Society' that had been so free with their advice, to redress the situation.
Also, all the banks in question were warned in writing by a couple of investors way back in early 2006 that there was a major issue with this developer. So, what did they do? Stop the lending? No – of course not – all the banks did to continue on their profit spree and lent millions more !!!
And were they prudent in their lending? Well, in one case a man on £ 18,000 a year ended up with mortgages of over £ 6 MILLION! And this man never hid his earnings from anyone!
So, were the banks at all caring about all those small investors who were not only facing financial ruin, but would never be able to get another mortgage due to the banks penal credit scoring systems.
No, they started on a campaign of debt chasing phone calls, from 7.30 in the morning till 9.00 at night, threatening with eviction, foreclosure, bailiffs, loss of their own homes …
And for why? All because the properties the banks took on as security were only worth a fraction of their actual values.
So, where were the checks and balances that the FSA was supposed to have had in place? Where were the activities of the other Pillars of society in protecting the man in the street – the lawyers, the valuers, the banks …
No – all the banks are interested in their pound of flesh, and if the properties are worthless, they will suck the life blood out of the already duped investors.
Roll on the great return to the tin under the mattress – at least you can see what is going on …