Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Thursday, February 21, 2008


It is no surprise that, with a climate of tremendous financial instability and increase in personal debt (much laid at the door of banks that insist on individuals taking out credit card loans: Credit Card Debt), these banks now push the blame onto those who took out 'loans', creating debt. Perhaps it is ill-advised to contract into an agreement, but the war of attrition by persistent 'junk' mail, possibly intimidates some into taking out such an 'offer' to get the banks off their backs.

It does, of course, do the reverse. The persistent attack, bordering on harassment, of such an approach is technically legal.

A large number of 'affordable' mortgages involve essentially interest only repayments. The capital will never get paid off and the mortgagee is locked into paying huge amounts of interest to the banks simply for providing the original capital. The 'homeowner' is a technical term since the lending bank or building society actually owns the property for which the 'homeowner' pays just interest on a 'loan' to live there. At an enormous cost. Paying £100s interest to a lender is possibly no better than paying rent to a landlord. The belief is that 'owning' your own home is better than paying a landlord to live in theirs. The home is owned by the lender who allows the incumbent occupier to live there by paying interest on a 'loan' (the rent). The best solution for the lender and the worst for the borrower. The 'owner-occupier' is totally responsible for the property and pays the premium to have that responsibility.

A landlord has responsibilities 
whereas a lender has none and results
in 'homeowner' having a very cynical definition

When payments are no longer kept up, the lender forecloses and eventually initiates repossession action. The lender will almost certainly be successful in the move and will 'repossess' it's property from the 'homeowner'. The lender makes a real killing since the property is then sold at auction at a reduced 'market value', but probably a more realistic (true) value to recover the original loan. But on top of recovering the capital outlay:

total interest that has been paid will be pure profit

And the ex-'homeowner' will be liable for all court costs. The lender is in the comfortable win-win position and the potential 'homeowner' is in the very painful lose-lose position between that rock and a hard place. The push to get buyers onto the fictitious 'property ladder' has been intense for many years and the potential 'homeowner' has the illusion of climbing a 'ladder'. But the piper calls the tune and continues to move between repositioned goal posts. When the 'homeowner' is stuck up a 'ladder', there is no control to where (or how) the 'ladder' is then moved.

The banks are laughing all the way....

to the bank

A bank is an institution that secures its own finance (profit) within its own vault. The people ('clients') willingly 'pay in' their own money in the belief that they are getting something in return. The only purpose of a bank is to profit in the misery created by the lending culture promoted by itself. The secured loan (debt) tied in to a property that in all probability is not owned by the borrower (still being bought with an existing amortised interest (debt) on a mortgage) increases the risk to the borrower without any real risk to the lender. The house that is not owned by the incumbent owner-occupier.

This describes the most vicious of circles and breaking out of the circle is almost impossible once entered.

The current concept of home ownership has been changed. To own your own home once had the status of independence. Nowadays the belief is one of independence, but the reality is being absolutely tied in to the lender. Another reason for the greed culture to promote population growth. A grotesquely oversized consumer market and the elephant in the room is clearly the demise of the human race while planet Earth lives on and recovers without the parasite. And that can only be a good thing.

  • The upside of non-home ownership: paying rent to a landlord (who may themselves have a buy-to-let mortgage) does appear greater than the downside.
Banks also offer mortgages. Of course they do. It would be a betrayal to financial planning if they didn't.

The potential win(-win) for business heads is enormous: bring in the debtors and get (very well) rewarded. Debtors are very effectively chained to the lender for a life time, paying in mostly (amortised) interest. Paying in everything and getting virtually nothing in return.

This whole episode has just started and the conversion of assets of over £100billion has grown into an underwriting by public taxpayers' money to in excess of a further £100billion. This bank has overstretched itself by lending a great deal more than it has, so the real asset value is clouded in mystery. It is a very confusing scenario, yet a great deal of money has been theoretically created through enormous debt. The debt has been forced upon the taxpayer to rescue a bank. The bank should have folded, but that cannot be allowed to happen. The (almost unbelievable) paradox here is that due to incredible (apparent) mismanagement, the financial world would be undermined. This cannot be seen to happen so the bail out began with the Bank of England 'stepping in' like some knight in shining armour.

Adam Applegarth was at the helm throughout this mysterious time and in the summer of 2004, was very upbeat about Northern Rock. Now many 'winners' seem to be at the trough, yet predictably none of them are customers. Such winners can never lose. Applegarth is expected to receive almost £400,000 for his efforts, but sadly no bonus or pension contribution for this year for his assistance in 'smoothing' the tortuous path of Northern Rock. His resignation allows him to walk away from the mess (probably wringing his hands together in despair) and get paid too.

Another example of the confusion dates back to September 2007 when the Bank of England got involved.

And on it (still) goes. The trough gets deeper and the muddy water just gets murkier. The stench is already overwhelming.

Don't sit down, it will produce incredible pain.