Born to be poor
It’s tempting to say ‘when will this government learn’ however then one thinks about the government and it’s not so much ignorance as arrogance. It seems then that post the introduction of the £80bn Funding for Lending Scheme (FLS) over the summer the chief beneficiaries have been, yes you guessed it, the banks. The FLS was conjured up by the Bank of England and the Treasury as a way of encouraging banks to lend to households and businesses. You may remember that git Osborne trumpeting the idea. It was in response to the fact that Quantitative Easing/money printing, which was designed to inject ‘money’ into, well, the ‘money supply’ monumentally failed to do so, with the happy recipients of QE funding, the banks, overjoyed at being given money for them to build up their balance sheets after they decimated them in the banking crisis. Essentially FLS was another way of encouraging lending post the failure of the first attempt. Well turns out this hasn’t worked either and you can guess, I’m sure, what has happened. Anyone could right?
Seems not, particularly not the government. Here’s what’s actually happening and let’s start with a note to editors from a press release on the Treasury website:
“Institutions will pay a fee for borrowing through the FLS. The price of each institution’s borrowing will depend on its volume of lending to the real economy during the reference period: for banks or building societies maintaining or expanding their lending over that period, the fee will be 0.25 per cent pa on the amount borrowed; for banks or building societies whose lending declines, the fee will increase linearly, up to a maximum of 1.5 per cent pa where lending decreases by 5 per cent or more.”
So it’s not so much a rate but a fee. There is a subtle difference of course between a fee and a rate. Fees, in general, don’t change. It would appear the banks say how much they want from the FLS and they are sent an invoice of 0.25 per cent per annum. I wouldn’t be surprised if they are charged in arrears even! However, unlike a rate, a fee doesn’t change throughout the year based on the movement of a base rate…or LIBOR in fact, but that’s a whole other story. Secondly, if you’re a bank you get 0.25% if you expand your lending. Who knows how much by but I’m guessing that banks will, miraculously, expand their lending…to people they would have lent to before, low risk, “prime” customers. And that is what is happening, and pity the struggling business or poor bastard who really needs a loan or a mortgage…
Average tracker mortgage rates run at 3.68% according to BofE data and average standard variable rates run at 4.33%. You do the maths. Essentially the Bank and the Treasury are providing the banks with cheap lending so they can fleece the country and pocket the difference. Now what do you think? Is it ignorance or arrogance? Is it that they really thought that the banks would play ball or actually that they think it’s their right to be in power along with the banks and that the little people deserve whatever is coming to them. They deserve to be poor; they are born to be poor. This is the arrogance I’m talking about, the persona of power versus a people who are powerless. And we haven’t even got into costs of an overdraft, over-your-limit penalties, credit cards and payday fucking lenders.
It goes on, savings rates, of course, have dropped: 2.2% on an ISA, just over 1% on an instant access deposit account. Apparently with funds being provided at such a low rates banks don’t need to be competitive. “Who cares! We’re making loads of money on the FLS funded lending. We don’t need those savers!” They actually don’t…which is intriguing. Let’s think. If they really don’t need savers then really they’re lending money based on their lending. They are able to lend you money because of the money owed, theoretically, to them and of course the inflated interest income they are raking in. It’s a miracle! They don’t need any savers at all! Actually it’s not a miracle. It’s called Fractional Reserve banking and it’s bedrock of the banking industry. It’s how they “print” money. Yup, they do it too!
Just one last point, notes to editors also reveals this:
“Participating banks are required to pass on the entire benefit that they receive from the guarantees to smaller businesses across the UK through cheaper loans. Businesses that take out an NLGS loan receive a discount of 1 percentage point compared to the interest rate that they would otherwise have received from that bank outside the scheme.”
Well, firstly, the first bit hasn’t happened. Secondly, it’s the wording that gets me i.e. that a business will get a discount to the rate they would have ‘normally received’ from the bank for that loan. Well sure! It’s not as if a bank is going to make up a higher rate just so they can ‘give’ a discount!
Suffice to say, lending is down and mortgages advanced in the last quarter are down 9% year on year….