I am far from certain if any reader of AccountingWeb can explain to me where money comes from.
Positive Money’s explanation, supported by many leading economists is, therefore, attractive to my very simple mind.
It would seem that when you ask a bank for a loan, that money is created just to meet your loan requirements.
Nevertheless, the bank charges you a fee for the loan,
It also charges you interest on that loan.
It frequently also asks for security against you defaulting on the loan.
A personal Guarantee which may be backed up by an asset such as your home, or very frequently an SME with all of its assets AND the home of the owner.
A legal definition of a Personal Guarantee is a “blank cheque”
Should you not be able to meet all the requirements of that security backed loan, the bank is then entitled to make a call on your security,
Even though the money was created just to satisfy your loan requirements.
Furthermore, the Bank is entitled to sell your loan to whoever it wishes to, all too frequently a “vulture fund”.
So you have borrowed money, say £100.000.against your home/
You have not been able to maintain payments, so the bank sells your loan to a vulture fund discounted for say £50k: The bank still makes £50k for something Positive Money claim has cost them nothing, from the sale to the vulture fund.
The vulture fund then evicts you and sell your home for its true value, £100,000 so also making a £50k profit.
We have asked Prof Nigel Harper a leading bank specialist to comment.
Nigel believes that the banks are now run by unqualified banking individuals. As such he describes them as “unqualified, unprofessional, unethical, immoral Buccaneers and traders, In this context, Nigel admires the recent Judgment of Judge Beddoe in the high profile HBOS Reading case (the one with all the prostitutes).
Nigel asks the question as to how can a bankrupt bank continue to pay bonuses?
Like Judge Beddoes, Nigel is appalled at the lack of bank regulation as practised by the FCA.
This money created from a bookkeeping entry causes huge harm to many hard working families when used in the way described above, and practised in the HBOS Reading case.
There is very little protection against this process in the Law.
A bank owes no duty of care to an SME
It is virtually impossible to get discovery of documents against a bank.
A Guarantor or SME owner knows nothing about the position he finds himself when his guarantee is called on: he is up against a sophisticated combination of bank, vulture fund and insolvency practitioner.
There is only one solution that I can see,
Instead of banks benefiting from Quantitive Easing, this money is repaid to SME owners who have suffered.
H4L provides just a little of the information needed to help guarantors if they need to go to Court.