by Mitch Feierstein about 5 years 10 months ago
Yesterday mortgage rates rose.
In normal times, that wouldn’t really be news. Sometimes interest rates rise, sometimes they fall. Sometimes savers lose, sometimes borrowers do. Swings and roundabouts.
Only – have you noticed? – these aren’t normal times. The Bank of England’s main lending rate has been glued to 0.5% for more than three years now. Because that’s not seen as a loose enough monetary policy, the Bank has also been printing money via Quantitative Easing. In fact, in relation to the size of our economy, the Bank has printed more money than any other central bank in the world.
Easy money: The Bank of England has kept interest rates low while also printing money
So at the most fundamental level, money is plentiful. It’s being pumped into the banking system so hard, it’s surprising that something hasn’t yet burst at the seams. Yet somehow banks think that, despite this astonishing level of state intervention on their behalf, they’re entitled to more. That they’re entitled to drive up your mortgage rate. That they’re entitled to charge you money in order to safeguard their bonuses.
Now, bankers will tell you these accusations are absurd. They’ll say that you can’t just look at the official rates. Crisis in the eurozone is making banks wary of lending to each other. The most widely used measure of interbank lending is the so-called LIBOR rate and those rates have been drifting slowly up from their previously unprecedented lows.
There are a few rejoinders to that, however. First up, it’s become ever more obvious in recent months that LIBOR rates have long been manipulated by the banks (something I’ve addressed in this column before). So for the banks to point to a rate which they themselves manipulate as a measure of financial pain is ridiculous. If they produce credible figures, I’ll listen. Until then, I’ve got no reason to.
Second, you need to remember just how vast was the extent of taxpayer support for the banks during the first phase of the financial crisis. Was and is. Government debt as a percentage of GDP currently stands at around 66%, if you exclude the impact of those financial interventions. But why would you exclude them? We did intervene. We are on the hook. Those interventions happened. So the true figure for British indebtedness is more like 141% of GDP – that’s not my figure, it’s the government’s.
The difference between the two figures translates to around £1 trillion. That’s how much of your and my money is currently at stake with RBS and the others.
Third, and despite their silver-tongued promises to over-credulous government ministers, banks are still failing to lend. They’re not lending to small businesses. They’re not lending to consumers.
If you go online and borrow money from Wonga.com you’ll find APR interest rates of 4214%. Those extreme and (in my view) extortionate rates couldn’t exist in a properly competitive marketplace. But in the gummed-up and uncompetitive market that we are stuck with, Wonga seems to thrive and prosper. And all this in an industry where, as the PPI scandal has proven, banks have absolutely no ethics, no concern for the customer.
QE Bubble: London property is overvalued to the tune of at least 22%
Finally – and worst of all – banks are still a huge source of danger for the economy at large. The London property market shows every sign of being another bubble. Property prices in general are much more likely to fall than to rise. Yet who, seriously, believes that banks would be safe in the event of a 20% fall in property prices? Given that the Economist global house price monitor suggests that British property prices are overvalued by around 22%, it might be safer to budget for a 35 or even 40% fall. Yet if that were to happen, can you even imagine the carnage that would be caused? I can’t.
Mervyn King once commented that he couldn’t understand why the level of anger against banks wasn’t higher. Sure, we grumble, but where are the boycotts? The mass protests? The insistence that we won’t pay another halfpenny in extra mortgage payments, until we get proof that no banker at these bailed out institutions has been paid a bonus in excess of the national median wage, that bankers themselves have put in the hard yards to cut costs, reduce risks and stabilise the ship.
That’ll never happen, of course. We’ll just go on grumbling. In the end, the bankers are right. We’re mad. And they’re laughing.
This was published in todays Daily Mail.