6 Mar 2011

We need to restore laws against usury

Chapter 9 of Nicholas Shaxson's excellent "Treasure Islands" starts like this:

"The practise of usury - lending money out at excessive interest rates - has a nasty historical taint. The prophet Ezekiel included it with rape, murder and robbery in a list of abominable things; the books of Exodus, Deuteronomy and Leviticus forbid it, and Plato and Aristotle called it immoral and unjust. In Dante's Inferno 'lewd usurers' sit in the seventh circle of hell, and the Koran states that 'whoever goes back to usury will be an inhabitant of the Fire".

(For an excellent survey of the history of usury, see the article on Alastair McIntosh's website).

Shaxson then goes on to explain how deregulation of the financial markets starting in 1978 has led to the current situation where credit card companies all routinely obtain upwards of 20% interest, despite the fact the official bank rate in the UK has been a miserly 0.5% since March 2009. As recently as July 2007 it was 5.75%. When the bank rate was divided by ten, did anyone notice that the rates that banks charge for things like credit card borrowing went down?? I certainly didn't. Only a few months ago, we got a wonderful proposition through the post - borrow €3000 immediately, and pay it off over five years at an interest rate of 19.4% - total cost something like €4500. I phoned the number on the letter and told the lady at the other end of the line that they should be in prison for proposing such outrageous interest rates. The response - "there is nothing illegal about what we are proposing".

She was right. There is nothing illegal about usury anymore. But there damn well should be. These people should be in the seventh circle of hell.

Is it any wonder that just about everyone is completely strangled by debt. In the UK consumer debt has reached £1.5 trillion (£1 500 000 000 000). When banks can get money at 0.5% and lend it out for 40 times the amount, why would they care if 150 000 people go into insolvency this year? It's easy to see that for them, the problem is a no-brainer... as long as there are enough people paying 20% interest on their credit card overdraughts, the banks will still be making vast profits - why give a shit about the people who can't afford to buy food or heat their homes in winter because they are up to their necks in debt.

HSBC just announced profits of £11.8 billion, Barclays made £11.6 billion, RBS (84% owned by the UK taxpayers) made £10.3 billion, Lloyds (42% owned by taxpayers) made £2.2 billion, Standard Chartered made £3.7 billion.

I thought the free market ideal means that competition will prevent any particular player from making excessive profits. Well, it's certainly not working now.

For me, the obvious step would be to cap lending rates at some fixed differential relative to the rates at which banks can themselves borrow. For example, I would have thought that a ratio of 5:1 should be plenty. If that were the case, credit card interest rates would be pegged at a maximum of 2.5% - that would get the economy going again....

And give us back those laws on usury. The Old Testament was spot on....

1 comment:

  1. Pay day u.k have recently advertised on tv offering loans at 2090% this is absolutely disgraceful that they are allowed to do this.Whilst I realise that any person committing themselves to such a loan would probably end up bankrupted this then would be of no consequence to the lender.
    How can the government continue allowing this state of affairs.