The banking system: lessons from my childhood

One of the questions on Politics Home this morning (I am a panel member of this daily tracker of opinions political) was do I think the banks should go back to a separation between our old safe, solid high street retail bank – and the speculative, take risks, make loads of dosh type investment banks?

Yes I do! I can remember being absolutely irate when our reliable, responsible banks were freed of such regulation and zoomed off to the realm of the speculative. I was upset because I liked slow and steady.

Perhaps this was because of a salutary experience I had about risk and loss. I had a very early example in my life of the dangers of the offers of a higher return on savings than the norm. In the flats where I grew up was a young financial buccaneer. He had his own merchant bank at the age of about 23 and all the families who lived in the block thought he was just the bees knees. All our families had seen this man grow since he was a little boy – and so when he had his bank all set up – he went and sought investment from lots of people who lived there – friends and neighbours. Many of these ‘investors’ were coming to the end of their working lives and I guess the offer was too good. I don’t know too much about the rates etc as I was a teenager at the time and not much interested in boring things like investment.

Anyway – however ridiculously high the promised return was – I expect a mixture of hope and trust and familiarity persuaded quite a few of the residents to place their life savings with this young man.

Of course, like all morality tales, this ended badly for these trusting folk – and all their money was lost. And the moral of the story was if it looks too good to be true etc.

The young man went to prison for about six years I think – so justice was done – but quite a few properly lived lives were ruined. These were not rich people – just people who had worked all their lives and put away their savings. They may have made a mistake in putting too much money with one person – but it was a harsh, harsh penalty for that.

Anyway – that was a merchant bank and therefore it was ‘buyer beware’. But when our safe, high street banks, changed into risk-takers – I guess many people didn’t really understand that they could play fast and loose with our money the same way investment banks could and did.

For those of us who had to literally beg for our first mortgages – when it was a case of being judged suitable to receive a loan on the basis that you would be capable of paying it back – the idea of a 100% or 125% mortgage is inconceivable as a model.

Were we, the population, collectively guilty of partying thinking we wouldn’t get a hangover? Maybe a bit – but if we thought the party would never end – it’s because the banks and the Government led us to believe that was the case. We couldn’t imagine that banks would be allowed to behave that way – let alone with the tacit encouragement of the Chancellor latterly Prime Minister.

But I think we relied on the banks to know what they were doing in the way they used to. If they said we could borrow like there was no tomorrow – live now and pay later – then there couldn’t be a problem with it. The banks led us up the garden path (albeit we were happily led) and now we find they were full of avarice and greed.

So when Gordon yesterday talked about a return to the separation of banks back to the old style high street banks – he is right but how dare he not accept or understand that it was under him that this dangerous financial model was given license and bred the monsters who have led to such a downfall. And yes – Gordon – it may be a global financial downturn – but the seriousness of our situation is laid at your door. No one else’s.

I can’t help feeling sorry for the prudent in all of this. Yes – of course those who suffer direct hits on job and home are first in line for help. But what about all those older people who supplement their meagre pension by the interest paid on a lifetimes work savings? As Vince Cable (Lib Dem Shadow Chancellor) says – time for thrift and sensible behaviour. But we need some assurance that thrift and sensible behaviour will be rewarded – not punished – as is currently the case. Now – there’s a novel idea!

0 thoughts on “The banking system: lessons from my childhood

  1. About three years ago an accountant agreed with me that medium level savings are a waste of the effort to acquire the dosh. Got to have a lot when you retire, or might as well have next to nothing and therefore pick up all of the benefits available. She could see the crash coming.