The Great Student Funding Swindle

If, like me, you have young people at University, you will be aware of the concern most, if not all of them have, about emerging at the end of their courses, carrying a burden of debt around their necks which they will be required to repay.

Who could have ever dreamed up this piece of inspired lunacy, and why was it enacted?

Step forward our greedy, ruthless friends, the High Street Banks, with their contemporary passion for debt and all things borrowed!

Years ago, if you were a student, most banks wouldn’t even look at you with anything other than utter derision, if you tried to open an account. You had to be introduced by someone they knew, (usually a parent, with a good solvency record), and they in their turn had to sign their lives away in order to underwrite your potential debts.

If you wanted a credit card, well, you would have to demonstrate at least 2 years careful and prudent account management before they would even consider letting you have one of those dangerous items, oh and guess what, Dad had to underwrite that as well.

Then, one day, a young risk manager in some back room somewhere, came to the realization by examining the history of bank lending in the UK, that of all the money lent to unsecured borrowers, a repeated average of 88% of all customers consistently paid their debts, in full and on time. He had stumbled across the submerged British fear of debt and indebtedness, and the concomitant social taboo of insolvency or personal bankruptcy.

Unlike America, where an early bankruptcy or two is merely the badge of the entrepreneur, in Britain, to be publicly ‘outed’ as a debtor, was a major badge of shame and dishonor. The obsessive fear of being buried in a pauper’s grave led millions of ordinary working men and women to save a penny a week with the early insurance companies, in order to be able to pay for a proper funeral and a dignified burial. The ‘Man from the Pru’ who called at working-class doors every Friday night and solemnly noted down the penny and twopenny contributions handed over by calloused hands, was the forerunner of a financial revolution.

Once financial institutions realized the implications of this important figure of a virtually guaranteed 88% return of all loaned capital, it didn’t take them long to come up with an interest rate which would take care of the shortfall, and thus the credit card boom was underwritten. More than any other financial facility, the credit card caused another revolution in spending practices, and enabled ordinary people to spend more than they owned, and by spreading the debt over a period of time, and charging a phenomenal rate of IPR, credit card providers still benefited from the magical wizardry of the 88% return of the initial capital borrowed.

Once securitization of indebtedness became more standardized, it didn’t take very long before the banks had found themselves on a ‘no-brainer’, sure thing.

The only problem was that there were only a limited number of traditional banking customers that they could encourage to engage in this activity, and ironically, many of those clients tended to use the credit card as a charge card and pay off its capital spending within the first month of the debt. So, while the credit card had stimulated a High Street spending movement, the banks were now having to compete harder for the profits from the cards.

Reducing interest rates was one way to become more competitive, but that tended to challenge the profitability aspect, and took the risk mathematics closer to the edge where the potential loss shortfall had to be guaranteed.

So the banks did what they are very good at doing, they looked around for another market. Recognising that the 88% rule still held true, they started experimenting with lending longer-term, instantly securitized, money to fund the purchase of furniture and household goods, thus spawning a rash of off-motorway warehouses crammed to the rafters with cheap, nasty and shoddy furniture, beds and carpets and kitchens, which offered 2, 3 even 4 years interest-free lending to potential customers, in order to attract them in to the store. In fact, so effective was this marriage between the crappy furniture manufacturers and the money lenders, that ordinary shoppers who wanted to pay cash or by cheque for the goods, were discouraged and the credit terms were virtually forced on them instead.

However, the magic 88% figure still held good, and the money-go-round went on.

In the search for ever new markets to exploit, the banks were having to come up with ever-more ingenious initiatives. The research boys and girls went into their back rooms, crunched their numbers, and came up with another remarkable statistic. They discovered that when new students went to university, in order to be able to bank their grants and living allowances, they tended to open bank accounts on-campus, and in most cases, in the same bank as that which their parents had used. What was even more amazing was that a very significant number of new students, kept their early bank accounts going, once they had graduated, or merely transferred them to other branches of the same institution elsewhere.

In other words, students were remarkably loyal, whether through inertia or gratitude, to their original bank, and a high percentage, yes, you’ve probably guessed it, about 80%, fulfilled that profile.

It was not a major leap between reconciling the two statistics before the banks realized that they had an untapped potentially new market available to them. All those student bank accounts who would remain loyal to them, and who would repay 88% of any loans they received.

At the same time, Tony Blair and New Labour were desperately trying to find a solution to their well-publicised policy of extending university education to a much wider number of students, ostensibly to create more social equality, but in reality, to keep the unemployed statistics down to more manageable levels.

Announcing policies is one thing, paying for them, quite another. But then the time and effort invested in the Prawn Cocktail offensive, the practice first begun under the deceased John Smith, of getting New Labour apparatchiks to make friends and contacts with the financial sector, started to pay off.

The banks had a way of making the whole thing happen, and it would not cost Government anything because they would make the students responsible for their own debts, through the form of repayable loans. Students would be lent money through a lending forum to pay their fees etc, which they would then be required to repay over time.

The banks were prepared to take on this responsibility, because it meant that they were guaranteed a vast new market of potential clients, and they would not even have to wait for these people to start earning money to spend, because they would be got into debt within a few weeks of opening the accounts from their education loans. These loans would eventually be repaid, but that didn’t matter because the debts were securitized anyway, and the students would become long-term clients of the banks for the foreseeable future. It was a dream come true.

The only problem was that the banks had, in their greed and in their obscene obsession with their own profitability and their bonuses, started to lend to a whole new market of borrowers. It is called ‘the sub-prime’ market, and what that means in ordinary terms, is a group of people who would not, in the old days, have even been allowed to set foot inside a bank, never mind have an account with them. These were the unwaged, the underclass, call them what you will, but the banks saw them as just another market to load with debt, thus meeting their monthly lending targets to get more and more money on the streets.

Lending officers started lending money to consolidate other unpaid debts, County Court judgements, unsatisfied loan agreements, outstanding child maintenance payments, all the shoddy detritus of the underclass, hand to mouth, way of existence, but it didn’t matter, because they also sold them nigh impossible-to-activate insurance policies which enabled the banks to buy unsatisfied debt insurance cover for themselves.

In the end, all banking prudency and ordinary conventional banking practice went down the tubes, as the debts piled up, and, more importantly, the value and worth of the 88% rule was eroded.

You see, the 88% rule only ever worked while it was based upon the statistical evaluation of those clients who borrowed money under the old rules of banking. In other words, they were the decent, prudent, careful, honest, yes, let us not balk at that word, honest people, who would repay their debts. It was on their borrowing habits that the statistic was based, not upon the ‘here today, gone tomorrow’ culture of the rapidly growing British chav class, repeatedly re-financing their growing indebtedness on the back of the dubiously increased value of their properties, whose values were only being inflated by a market reacting to the meaningless amounts of money being paid to bankers and their satraps for simply keeping the money going round. In the end it had to stop!

So, now we have a whole generation of students, up to their ears in debt, and whose chances of getting a job at the end of their studies is increasingly challenging. At the same time, they will be unable to borrow any money to fund a house purchase, even if they have work, because banks will not now lend to anyone, no matter how much tax-payer’s money is shoveled into them. What chance these youngsters will have for re-paying these debts is uncertain, and will only fuel an increasingly bad credit record for them, so all in all, they should not be blamed for saying ‘Fuck you very much, Mr Blair’!

I am increasingly enraged when I keep hearing banking apologists talking about the need to retain the best financial brains in the UK and the need to maintain the status quo of salaries and bonuses in the banking industry in order to do so. I would just like to meet some of these so-called ‘banking brains’ and challenge them to justify their actions and their conduct. It isn’t going to happen, because they are all too busy hiding from those of us who are on the receiving end of their incompetence.