Banks, Mortgages and Threats (Why governments need to grow a pair)

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Sometimes you just wish the governments in the Eurozone would grow a pair and tell their paymasters where to get off. This is the case now with the Spanish government and banks. It is the same throughout the Eurozone of course. In the UK Vince Cable has talked about the banks being obstructive to the banking reforms and just saving up another crisis for the future. Here in Spain it is something more day to day.

The banks have been let off from the crisis that they created by using our money to speculate wildly in the hope of making more money for their shareholders. When they bet on black and it ended up seriously in the red they were bailed out all over the World, their debts were passed onto governments who bailed them out and those governments pass the pain onto the people. The banks escaped virtually unscathed and now through their artificial, supposedly independent, ratings agencies they then have the temerity to act as they are doing now by raising any rates of lending to prohibitive levels, meaning they are making record profits again in many cases.

So what is special about Spain? Well the banks in Spain avoided the credit default swaps that brought down banks in the States and other parts of Europe because they were too busy giving credits for building in Spain, or rather overbuilding in Spain. In order to then fill these houses and apartments that they were financing, in the most inappropriate places at times, they allowed credit to be given to anyone, usually by manipulating valuations and encouraging everyone to get a mortgage with ridiculously cheap credit but onerous terms that were never explained to the clients.

Why did they do this? The truth is they believed they couldn’t lose due to the Spanish law on property. In Spain if you have your house repossessed the bank can adjudicate it to themselves, previously at 50% of last valuation and recently changed to 60%, and the creditor is left to pay off the rest, usually for the rest of time. The banks can take a large part of your wages off you until you have paid off the remainder and embargo any goods or assets you have.

Expect a bed, you get to keep a bed.

The banks also imposed a collar on mortgages so they could not drop below a certain point, usually beneficial to them as that point was often 4% even though the base rate was at 1.5%. in many cases this was not explained clearly to people taking out mortgages and at the end of their first year of mortgage their rate jumped alarmingly often at the same time as them losing their jobs.

So due to their restrictive practices and getting others to finance their own bad investments people now are beginning to rebel against capital.

There is a large and growing movement for the American system of payment to be put in place, ie the return of the property pays off the debt completely rather than the percentage that banks currently allow. In other words you can hand the keys back and walk away.

The government and opposition have refused to even discuss it despite the support even from the independent judiciary. The reason is simple, they are controlled by the banks.

The banks have threatened to stop lending at all if the measure is brought in. This is the point where the government needs to grow a pair and say “ok stop!”.

The truth is the banks are not lending and therefore their threats mean nothing. Last month mortgage lending dropped 42.8% year on year from what was a very low base last year. The mortgages that were given were for lower amounts and in the vast majority only for the properties that the banks have on their books, ie properties they have either repossessed or financed to developers and therefore they are the beneficiaries of taking a liability off their books.

So what should be done? In my opinion let them make threats of course but don’t listen to them. If they don’t lend eventually other forms of credit will emerge to fill a void, both nature and the economy won’t allow a vacuum. Foreign, well managed and capitalized, banks and even credit unions are already starting to fill the gap but because of the banking regulations which are rather restrictive for setting up, the banks here have a protected position.

It is about time the people and the governments woke up to the damage caused by the banks and stopped pandering to them. We can only hope that time comes soon, however I am not holding my breath.

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