How I predicted the Credit Crunch

Yesterday I blogged about my sorrowful experience of working in the retail banking sector. I left through a combination of the realisation that I was really bad at being a cashier and horror at the hard-selling tactics we were expected to employ to meet the banks targets.

Most of the recent coverage of the evils of this approach has focussed on PPI – the extra insurance policy sold with personal loans, supposedly to cover the borrower in the event that their circumstances changed and they were struggling to make repayments. Fortunately I was never really involved in this side, and I’m not really up on all the ins and outs of this particular product. But I was asked to recommend customers for loans based on the activity on their accounts.

I totally get the logic of consolidating lots of high interest debt into one lower interest loan. But it was always very obvious that the bank wanted us to push customers to borrow money whether it would be advantageous to them or not. After work one day I popped to the cash point and saw the following advert on the screen:

“Want it? Why wait? Ask us about our personal loans today!”

I’ve always been interested in personal finance, and my parents instilled in me a tremendous sense of fiscal responsibility. My Mum would frequently say to me “Whatever you have, spend less.” So my answer to the above question, “Why wait?” is usually along the lines of “because that’s the sensible thing to do.”

I appreciate that modern finance doesn’t work the way it used to. Living without any debt at all is tricky, particularly if you went to university which means you will probably have a student loan if nothing else, or you own your home rather than renting, which means you’re likely to have a mortgage for a substantial period of time. But I always tried to live by the general principle that borrowing money should be done after careful consideration of its purpose and an absolutely rigorous repayment plan, taking into account what might happen if circumstances changed. I felt the cash point advert trivialized these aspects of borrowing and encouraged a frivolous attitude to both taking out a loan and spending it.

In the last few weeks that I was working at the bank Terry and I started hunting around for a mortgage. This was the spring of 2003 so 5 years before what would come to be seen as the start of the credit crunch. it turned out that the high street banks were falling over themselves to lend money to a pair of employed graduates. We had carefully budgeted out what we thought we could afford, and were looking at properties priced according to this budget. To our surprise virtually all the representatives of the banks we spoke to tried to get us to borrow more money than we had asked for. We icily informed them that we didn’t intend to spend the rest of our lives paying off our first mortgage, and they backed down.

The day I left the bank I drew the manager aside and told her that their whole attitude to consumer credit was unsustainable. I didn’t know a whole lot about economics, or the housing market. But I had seen that in every bank in town, vulnerable and ill-informed customers were being encouraged to borrow more money than they could reasonably afford to pay back. I know that in reality righteous and indignant speeches rarely come out the way they would in fiction, and I have spent the past 9 years in a haze of l’esprit de l’escalier. I think I said something like “this is going to end badly you know” and stormed out. Then realised I’d forgotten to return my keys and slunk back awkwardly. That’s real life for you.

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