A spot of banker-bashing...

I can be certain of one thing.

Banker-bashing will still be the sport of the moment.

And why not? After all, it was those greedy shysters who got us into this mess in the first place, wasn’t it?

Er – no!

Well, Gordon Broon; Blair; the Labour government? Nope.

Let me go back nearly 40 years when I bought our first house.

Mortgages were the province of Building Societies. They were ‘mutuals’, owned by their members. Their business was to lend members’ money to other members. To get a mortgage you had to be a member. To become a member you had to make a deposit of cash into the society. You also had to put up a substantial deposit – about 20% of the mortgage required. The society would only give a mortgage on one salary even though the house was being purchased in joint names. The mortgage term would be a maximum of 25 years or to age 65 whichever came first.

House prices remained almost unchanged from pre-WW2 to the 1960s.Then the market started to correct, and we had the first housing boom in the early 70s. Owners began to accrue tasty ‘positive equity’ – the house was now worth much more than the purchase price and mortgage.

Come the 70s and 80s and the financial sector woke up to the possibilities of making a shed-load of money out of housing loans.

So the banks climbed on board along with the insurance companies offering endowment mortgages.

Then the building societies, seeing an opportunity for enrichment, de-mutualised and became banks able to lend money to anyone, not just members.

A huge cash-flow was created, which inevitably led to a housing boom as people started to scramble to get aboard the gravy train.

Deposits were scrapped and, believing against all experience that the boom would last forever began lending at 125% of market value on joint incomes, and because people could now borrow humungous sums of money a bubble was created.

So were people content to see the value of their asset rise?

Nope.

The banks then encouraged to refinance their loans up to the new value of the house, creating even greater debts. The money was spent on the ‘have it all now’ principle – SUVs, 3 holidays a year, ‘stick it on the credit card’.

But of course the house was not an ‘asset’ until the mortgage was paid off; it was a debt, a liability.

To fund all this, the banks were not using customers’ deposits; they were borrowing from other banks.

Then the wheels came off, and banks started to refuse to refinance other banks – the so-called ‘credit crunch’.

So the bubble burst, thousands found themselves in negative equity –they owed more than the house was worth and since they could no longer refinance they could no longer finance their credit-card lifestyles.

And who was responsible for what has now come to pass?

Why, ourselves, the silly improvident generation that thought that you could buy the good life on tick!