Views and Commentary

"And then came Northern Rock, which in years to come may well become known as Year Zero!"

by Godfrey Lancashire

Christmas looms - but rarely have I ever been so apprehensive of a week of everyone pretending that it’s a “Wonderful Life”. It is essential that we all recharge our batteries for the onset of fresh numbers that continue to beggar belief, but somehow I suspect the news, throughout the season to be jolly, will remain steadfastly centred on the global economy from which no-one is vouchsafed, excepting, of course, the tax exiles and recalcitrant bankers with unsustainable bonuses.

However, as one article in this issue so cogently points out, the times we are living through could well presage a whole new way of doing business. While the article is perhaps “winking in the dark” its eminent author, David Birch, has dared to posit a situation where money itself has lost its “currency”. And let’s face it, we all know from what happened in 1919, money can sometimes be not worth the paper it is printed on.

There can be no question whatsoever that we are up a somewhat unclean creek without the means of propulsion. As a country, we have long adopted the live now, pay later philosophy that was initially fostered to sell televisions in the 1950’s.

I remember well when Bank Managers only lent money to consumers for “home improvements” when in reality the clients were buying cars or previously unaffordable holidays. The switch was fully thrown in 1986 and financial deregulation turned the industry into nett lenders with ever increasing targets. Prior to the Big Bang, mortgages were always seen as responsible borrowing, but along with the “right to buy” and an exponential increase in new builds, mortgages became just another financial product that consumers could switch from lender to lender as they did their myriad credit cards.

So what we have today is not just the result of a few years of profligacy. If the truth be known, the feckless nature of the British public as a whole owes its origins to the heady days of the mid eighties. And each generation from then has just taken for granted that “ask and you shall be given.”

There’s nothing to be gained from pointing the finger, but we should all be aware that the eye-watering levels of debt that daily grace our screens are our legacy to our children, possibly even our grandchildren. And that is why Germany is looking down its nose at us. They remain the engine that drives Europe and despite the wheels falling off, they are desperate to keep the Euro alive.

Let’s face it, despite our dire predicament, it is nothing in comparison with what Portugal, Ireland, Greece, Italy and now Spain are facing. Perhaps if the retirement age across the Eurozone had been the same as the UK and the standard state pension hadn’t been set at €30,000, they may have not been facing the austerity packages that are toppling governments.

But in hindsight, are we all not wise? Frankly no. At London House we have always been aware of the individual's desire to own what he only supposes he can afford. In fact we have built a business on helping lenders to find the would be defaulters and working with the defaulter to find a way for them to repay debt without access to the statutory instruments that invariably mean that the client does not get paid.

It’s not that we are uniquely prescient - all the financial institutions were aware of the potential and hedged their exposure with interest rates that reflected the perceived default. As long as they took in more than they lent out, they were ahead of the curve. And then came Northern Rock, which in years to come may well become known as Year Zero.

Northern Rock were the very epitome of the respected financial institutions set up to help people buy their own homes. It’s when they switched from Newcastle to New Orleans it all went wrong. Who on earth would have, for one moment, thought that many of our respectable High Street banks and building societies would have lent unfeasible amounts of their customers hard earned cash to people living 4,500 miles away. Unthinkable... but it happened. I’ll wager Mr Branson won’t make the same mistake.

Back in 1995 when we launched London House, we were often called upon to make a judgement on whether a debtor was a “can’t pay” or a “won’t pay”. Invariably, most were avoiding payment that they could afford with a properly constructed payment plan and a little economising on non-essentials.

Not today. We have an increasing underbelly that grows month by month as the unemployment figures inexorably rise. London House has always promoted its ability to assess risk before the loan was granted. That facility is now as relevant as ever, but we are now faced with a lending sector that is risk averse to the point of not lending at all -despite being fed with quantative easing the lenders remain steadfastly reluctant to filter down the finance that is the oil to grease the wheels of commerce.

Sorry about all of the above. It is not easy reading - it wasn’t easy writing. But the events of the last three years have merely served to bring home the unpalatable truth ... greed is corrosive on every level. Scrooge learned his lesson. That was almost 150 years ago ... has no-one taken that on board?

There may well be so many reasons not to be jolly, but let’s all be perverse and I personally will do all I can to ensure everyone who comes into contact with me this Christmas will not find me short on the true spirit of the season! I sincerely wish all readers a very merry Christmas and a prosperous New Year and extend as equally a warm greeting to all London House Franchise Owners and Head Office staff. We are living through “Hard Times” but that is no excuse for despondency ... as the British say and do, Keep Calm and Carry On! No “Bah Humbugs” here!