Yesterday we saw the cases of some horrifying debts imposed on desperate people by loan sharks. One woman who borrowed just £500 to buy a computer, was forced to repay a staggering £88,000 over just 7 years. It is beyond belief that such people can operate in Britain today and only get a suspended sentence of 51 weeks as their punishment.
The true extent of loan sharking is thought to be far greater than these test cases and as many as 165,000 people use loan sharks in Britain as the recession and credit crunch take their toll. Worse still, despite record low interest rates which are expected to remain at 0.5% for a sixth successive month, this figure could rise a further 35,000 in the short term. And it is not the domain of the destitute necessarily - professional people like nurses have been caught up in using loan sharks after their hours were reduced. These are desperate times.
While the advice from Government is to not use loan sharks and some £16m has been pledged to tackle the issue, the fact remains that even as we see light at the end of the tunnel in this recession, there are dark times ahead by those worst affected by it.
The Stupid Side
Contrast this terrible situation, if you will, with the utter stupidity that went on at HBOS. Yesterday we got another glimpse of some of the activities of Andy Hornby and his former executive team prior to the disastrous Lloyds take over last year. How Lloyds would wish to have turned back the clock as their Board, at the insistence of the Prime Minister himself, went ahead with the merger even though all indications pointed to the fact it could ruin their business. Indeed, so far did it ruin their business that we taxpayers now own 43% of the new group.
The losses within HBOS' Corporate Lending Division are staggering. In total over £19bn of loans have had to be written off since the merger related to loans made to businesses such as hotel groups, property developers and simple investors. The fact of the matter is that HBOS, in their absurd eagerness to lend as much as possible, simply did not undertake much, if any, due diligence on any of the loans - they just handed out the money to literally anyone for anything and had not a shred of interest if the businesses were able to service the debt in the long term.
While we may think these debts are not related to such exotic concepts as Collateralised Loan Obligations and other 'Derivatives' but are related to good, old fashioned bank loans, we would be wrong to think that. Ultimately, in a world where debt can be traded like a piece of precious metal time and again, and at each trade a smidgen of incremental profit is taken without anyone referring to whether the debt can be repaid, then it really did not matter in the 'New World Financial Order' whether HBOS did their due diligence or not. The debt was the precious item, not the asset or business it was related to.
I find it hard to believe that in the hubris that followed the credit crunch, people like Andy Hornby who as CEO and was responsible for this madness, were paid £60,000 a month on a consultancy retainer to help the business even after being fired - until someone finally noticed.
It is obscene that such incredible amounts of money could have been wasted for the pursuit of greed. Meanwhile, in the real world, if only a fraction of that wasted £19bn written off or the monthly £60,000 paid to Hornby even after he threw the money away was used to give loans to people who would otherwise use loan sharks, then we would not have loan sharks in this country.
It is that simple. If banks had lent even a tiny proportion of the combined £584bn currently ring-fenced in the Asset Protection Scheme as Toxic Debt, then the problem of 2,500% interest rates to desperate people would never occur.
Here's the rub. Loan sharks exist because they know people are desperate enough to pay anything for a loan. And they survive because people pay the astronomic interest rates back. Defaults simply get rolled up in more interest and in the end they make incredible profits on tiny debts.
It's a salutary lesson for banks and credit card companies. If they just thought about it, they could lend money to such people and get the debt serviced and repaid. Instead the banks lent money to any old company without so much as a cursory glance as to what the money would be used for and the company's ability to survive and repay.
In a world where a company can collapse and rise again like a phoenix the very same day, shedding its debt obligations and leaving creditors in the mire, we find this far more acceptable than helping desperate people who need money and have every intention, and often the means, to repay.
It is a direct consequence of the banking system we have today that more money than God has can be chucked away without a cursory glance, the executives expect bonuses for it and then desperate people are ignored. The disgusting thing about these two shocking stories is that we have the wherewith all to stop this now without even thinking about it. The solution is right there and can be implemented within hours. And loan sharks would be out of business and never seen on these shores again.
The chances of it happening and interrupting the party in the banking world are negligible, not while the investment bankers are murmuring in the PM and Chancellor's ears to make sure the world is how they want it - and we paid £11m for that advice too. Again, a sum that would mop up every loan sharked debt in existence if only we used money the right way.
Welcome to the world of finance, just complicated enough to make sure we never question it but simple enough to know it's wrong.
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