29 September 2008
Who is responsible for the Bradford & Bingley collapse?
Why has the Bradford & Bingley Bank gone tits up, leaving those British people who still have jobs and pay tax with a debt of £41 billion? Of course some of the people who took out mortgages with B&B will be able to pay their debts, but the bulk of the debt is buy to let and self-certification loans that can only be described as toxic in the present climate.
So who is responsible for this latest disaster? It is tempting to blame the spivs who ran the show, since they are the ones who singed off on these loans in the first place. We might also blame the Nu-Labour government that refused to bring the City to heel when it came into office back in 1997. It's also tempting to launch into another tirade against the Thatcher government that allowed deregulation a generation ago. However, none of these creatures are really to blame: the guilty men and women are actually the mugs who bought into the whole idea of popular capitalism in the first place - and there are millions of the silly fuckers.
The Bradford & Bingley Building Society dates back to 1851 and was run as a solid, northern mutual society that was owned by its members. For every pound that a depositor invested, he was entitled to one vote at the society's annual general meeting. The society acted as a savings institution that offered a slightly higher rate of interest to its depositors than a bank, and it offered good mortgage terms to carefully selected customers who it believed could repay their loans.
Life was not only simple, but the mutual societies offered a varient of capitalism that was not rapacious, and which benefited just about everyone who got involved with it. Then one fine day in the year 2000 stupidity kicked in and the B&B's members voted to abolish their mutual status and float the new bank on the stock market.
They did this on the basis of a promised windfall that would average £730 worth of free shares in the new company, a promise that was not kept when the flotation turned into a farce that left them with just £600. To make matter even more risible, the conversion needed the support of 75% of the society's depositors and 51% of its mortgage holders. This latter group had been warned that their mortgage rate would rise to that of a bank once the conversion had been made, but the dickheads still voted for it. Proof, if proof were ever needed, that turkeys will vote for Christmas if they are managed right.
What is the lesson that we can draw from this latest bout of capitalist hilarity? Basically that the old regulations worked very well indeed, and that a clear line needs to be drawn between banks and their shareholders and mutual societies and their members. The latter exist to benefit their members, but also society at large, since by not handing out mortgages willy-nilly they encourage saving and thrift. Once the dust has cleared from the credit crisis that Britain is going through at the moment, the demand needs to be made that the old division between banks and building societies needs to be redrawn.
By the way, there are still a few mutual societies in operation and the largest is the Nationwide Building Society. In many ways it operates as a bank, as it offers cheque book facilities, but it is still a mutual and should be supported on that basis.