Sunday, 24 February 2013

The Royal Bank of Mum and Dad

Back in the 1970s the world managed to stop the rot of recession by inventing the credit card. So people without money could spend what they did not have and banks, financial institutions and corporations could continue to amass more and more of the finite resource of money.

Fast forward to 2013. The world recession started in 2008 shows no sign of abating and banks once again do not want to lend money. So to alleviate the housing market by achieving mortgages for first time buyers, money experts are 'welcoming' the contrived intervention of the Royal Bank of Mum and Dad.

From January 13, Barclays Bank launch a product called ‘Family Springboard’, which basically allows parents to provide the financial security that the bank will not. Gone are the days of the 100% mortgage and we should realise fully that the banks are just as uncertain about our job security as we are. Mark Twain was so right when he said that a banker is a person who lends you an umbrella when the sun shines but wants it back as soon as it starts raining.

I am aghast at the sheer blatant cheek of the product. It is being dressed up as a fantastic idea but it is really nothing more than dragging the hard earned savings of parents into the area of risk that the bank will happily snatch away if said mortgage is not paid on time. As the price of everything goes up and savings interest squeezed to the point of pain, mum and dad would do well to remember that their fixed income in retirement may well have to call on the money the bank wants them to lend to their children. The bank wants parents to put their future at risk at a time when they desire to take none. What does that tell you about this so-called wonder product and how the bank sees the short term future?

It is a step too far and must be rejected. Naturally there will be more affluent parents who can quite easily stump up the cash without it having an impact on their financial future but these are in the minority. The pressure on many parents to use what would amount to their life savings or retirement fund is unfair and undeserving. It is the banks responsibility to lend the money and if a young person’s wages does not allow them to find the thousands of pounds required to put down a deposit, then wages will have to rise, or house prices will have to fall, or banks will have to offer 100% mortgages.

The problem is that economy does not like any of those solutions. To raise salaries will rob employers of profit, which will reduce the value of their company. If the bank of mum and dad behave like all the real banks then they will not lend out the money, which will further stagnate the housing market and push home owners into negative equity - thus stopping them from selling. This only leaves the bank to take the risk but they will only do so with extortionate interest rates or not at all. So why should mum and dad do it either?

Moodys stripped the UK of its AAA rating yesterday (22 Feb 2013) because they also know that the road to economic recovery is no certainty. And this all points to the notion that the capitalist system has hit a bottle neck, where the money most needed is hoarded but the wealthy, the powerful and the corporations seeking domination.

Is it any wonder that the banks want to squeeze every last coin from those who need it most in order to satisfy the avarice of those who need it least. This is the world economic dilemma and short of all out revolution against the money machine, we will be joining those who suffer at the bottom in poverty inside three years (2015 - 16)

To put it bluntly, there has to come a point where the bank of Mum and Dad closes - preferably with some money still left in it.

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