It was the year 2000. The Millennium Bug had failed to bring the world crashing down. The dot.com bust came and went and everything was still fine, give or take a few billion dollars. House prices were like bread dough. They doubled in size every time you looked. Majority thinking was that financial disasters were just a media construct. Or a movie. Or a history book.
Around that time, a relative of mine had a friend with a five-digit credit card debt. Interest payments meant the debt wasn't budging. I advised the relative that as a worst-case scenario, the friend's credit card debt could be folded into their mortgage at the then-rate of 4.99%, providing temporary breathing space and allowing the borrower to catch up before accelerating payments back into the mortgage to re-establish the previous equity ratio.
The relative advised the friend along those lines. Kind of.
The friend went to the bank and came back with no credit card debt, a smiling face, and a brand new car.
I hit the roof.
* * *
EIGHT YEARS LATER.
Last night, I had a dream. This was it:
INSIDE A COURTROOM IN WILLIAM STREET, MELBOURNE
PROSECUTOR: Is it true, Mr Kitchen Hand, that you advised Mr Joe Kmart of Endeavour Hills to refinance his home to pay off an exorbitant credit card bill - which was exorbitant again two months later - and buy a new Commodore V6 Equipe?
KITCHEN HAND: Some of it is. And some of it isn't. Do you want to know which bits are which?
PROSECUTOR: Not particularly, Mr Hand. I'm trying to establish a broad-brush general picture of blame here, not get bogged down in nitty-gritty.
KITCHEN HAND: I thought so. (UNDER HIS BREATH) Grandstander.
PROSECUTOR: Pardon me?
KITCHEN HAND: I was just commenting on the standard of debate about this crisis, in which nobody knows anything about anything, but everyone knows exactly who is to blame. It's kind of weird.
PROSECUTOR: Hmmph. Would Mr Kmart rise to the witness stand.
COURT POLICEMAN: He's out reparking his Commodore, sir. Two-hour meter. He can't afford another ticket.
PROSECUTOR: I'm not surprised. No-one can. Then can we have the banker.
THE BANKER RISES. THE EXPRESSION ON HIS FACE BETRAYS COMBINED WONDERMENT AND IMPENDING DISASTER, LIKE SOMEONE ON THE TITANIC AFTER THE THIRD GIN AND TONIC BUT BEFORE THE ICEBERG.
PROSECUTOR: Did you lend Mr Kmart an amount of money that eventually caused his house to be of less value than that of his debts?
BANKER: You're asking me a question about what happened eight years ago with the word 'eventually' in the same sentence? What am I? A seer? An oracle? The Governor of the Reserve Bank?
PROSECUTOR: I'll ask the questions here. Did you bother to find out if this man could afford his repayments before advancing him additional funds, especially given that he was already in trouble with his credit card spending?
BANKER (LOOKS DOWN): All financial institutions have in place effective protocols to ensure adequate protection from unforeseen defaulting on the part of the borrower.
PROSECUTOR: That just sounds like jargon to me.
BANKER (LOOKS UP): It is. I was reading it out from this book.
HE HOLDS THE BOOK UP. IT IS LENDING FOR DUMMIES.
PROSECUTOR: Oh, I see. A professional. So you had no qualms about advancing a vast amount of cash to a struggling soon-to-be-divorced man with a house in a vulnerable outer suburb, an out-of-control credit card habit and a hankering after fast-depreciating cars?
BANKER: Are you telling me or asking me? You can’t see questions marks in the air, you know. You need to indicate one by adding an upward inflection on the last syllable, otherwise you’re just making a cheap lawyer’s accusation hidden within the sophistry of sleight-of-hand language.
JUDGE (WAKES UP AND TURNS TO THE DOCK): That's very close to contempt of court. Carry on, Mr Prosecutor.
PROSECUTOR (AFTER A PAUSE DURING WHICH HE VISIBLY REDDENS): It was a question. Answer it.
BANKER: Fine. It was a question. Thanks for clearing that up. Now I’ll answer it.
Firstly, as I said earlier, I’m no seer. Nor am I a morals crusader, a nanny, a pastor, a household budgetary advisor, a schoolteacher of mathematics, an economics lecturer, a logician or a homespun philosopher. I’m a banker, even if the title is misleading today. Banks used to bank money, now they just it shovel it out the front door to passersby, who sometimes give it back, with interest. Sometimes. Maybe a bit less so lately.
But I haven’t the time, the inclination, the necessity nor even the legal capability of assessing a borrower’s home life, spending habits, financial intentions or any one of a number of other indicators of fiscal health beyond the current very limited criteria, all of which are government regulator-mandated, might I add.
HE TAKES A BREATH
Qualms? You know what? If you want that kind of banker you’re forty years too late. Once upon a time I could upbraid a borrower for daring to walk into my office without cowering in fear. Or for not wearing the suit he wore to church on Sunday. And if I felt mean that day, I could leave him languishing in an outer-room waiting chair for two hours with no magazine racks full of Property Investor or BRW Rich 500 or water fountain or Cafe Bar machine to keep him amused and he’d be all the more grateful when I finally decided to let him in.
In those days, for every loan I approved after long and serious contemplation, I’d knock back five after no contemplation at all. Plus, just try getting your wife to apply for a loan forty years ago and see how far she got.
ANOTHER PAUSE
OK, you’re shocked. Nowadays everyone think everyone should be able to get everything they want, including debt, and as much of it as you want. Sure. But you can’t have it both ways. The upside was, forty years ago you needed a thing called a substantial deposit, which demonstrated not just a propensity for saving but also provided a better borrowing-to-assets ratio. A cushion. Now it's 100% in the loan. Even more if you want to renovate or tour the world for six months or buy two cars or four boats or six franchises. As well as a deposit, you also needed another thing, called a job. These days it's different. I’m the one who has to dress up for a loan interview. The customer keeps me waiting. And the government tells me I have to loan funds to everyone without fear or favour or the Equal Opportunity Board gets a knock on the door.
Fine. I’ll lend to anyone. But don’t come after me when the whole house of cards finally collapses.
PROSECUTOR: Are you quite finished?
BANKER: I don’t know. You tell me. You seem to have all the answers this morning.
COURT POLICEMAN: Ah sir, Mr Kmart is back in the court.
JUDGE: Excellent. Have him stand.
PROSECUTOR: Mr Kmart. May I call you Joe?
MR KMART: No.
PROSECUTOR (COUGHS, ASIDE TO JUDGE): They all have attitude these days. (TO JOE KMART) Do you take any personal responsibility for borrowing out of your depth?
MR KMART: No. Why should I? The real estate agent told me house prices were rising so fast, mine would be worth at least $30,000 more by the time I took delivery of the car. That made the car free. Then, my credit card debt went from 19.5% to 4.99%, so I could spend a further twenty grand on it and call it an average of what, 12.25%? That's 7.25% less interest on every dollar spent on the credit card after the refinance.
HE SMILES BROADLY
See? I was way ahead already.
JUDGE (HALF TO HIMSELF): Yes. We really are in trouble.
HE GLANCES AT THE PROSECUTOR
Had enough of this?
THE PROSECUTOR NODS. JUDGE LOOKS AT WATCH OSTENTATIOUSLY AND YAWNS
Goodness. Is that the time? Court adjourned for lunch.
ALL EXIT INTO STREET AND ADJOURN TO CATERINA'S IN QUEEN STREET FOR LUNCH, ON THE CREDIT CARD.
Around that time, a relative of mine had a friend with a five-digit credit card debt. Interest payments meant the debt wasn't budging. I advised the relative that as a worst-case scenario, the friend's credit card debt could be folded into their mortgage at the then-rate of 4.99%, providing temporary breathing space and allowing the borrower to catch up before accelerating payments back into the mortgage to re-establish the previous equity ratio.
The relative advised the friend along those lines. Kind of.
The friend went to the bank and came back with no credit card debt, a smiling face, and a brand new car.
I hit the roof.
* * *
EIGHT YEARS LATER.
Last night, I had a dream. This was it:
INSIDE A COURTROOM IN WILLIAM STREET, MELBOURNE
PROSECUTOR: Is it true, Mr Kitchen Hand, that you advised Mr Joe Kmart of Endeavour Hills to refinance his home to pay off an exorbitant credit card bill - which was exorbitant again two months later - and buy a new Commodore V6 Equipe?
KITCHEN HAND: Some of it is. And some of it isn't. Do you want to know which bits are which?
PROSECUTOR: Not particularly, Mr Hand. I'm trying to establish a broad-brush general picture of blame here, not get bogged down in nitty-gritty.
KITCHEN HAND: I thought so. (UNDER HIS BREATH) Grandstander.
PROSECUTOR: Pardon me?
KITCHEN HAND: I was just commenting on the standard of debate about this crisis, in which nobody knows anything about anything, but everyone knows exactly who is to blame. It's kind of weird.
PROSECUTOR: Hmmph. Would Mr Kmart rise to the witness stand.
COURT POLICEMAN: He's out reparking his Commodore, sir. Two-hour meter. He can't afford another ticket.
PROSECUTOR: I'm not surprised. No-one can. Then can we have the banker.
THE BANKER RISES. THE EXPRESSION ON HIS FACE BETRAYS COMBINED WONDERMENT AND IMPENDING DISASTER, LIKE SOMEONE ON THE TITANIC AFTER THE THIRD GIN AND TONIC BUT BEFORE THE ICEBERG.
PROSECUTOR: Did you lend Mr Kmart an amount of money that eventually caused his house to be of less value than that of his debts?
BANKER: You're asking me a question about what happened eight years ago with the word 'eventually' in the same sentence? What am I? A seer? An oracle? The Governor of the Reserve Bank?
PROSECUTOR: I'll ask the questions here. Did you bother to find out if this man could afford his repayments before advancing him additional funds, especially given that he was already in trouble with his credit card spending?
BANKER (LOOKS DOWN): All financial institutions have in place effective protocols to ensure adequate protection from unforeseen defaulting on the part of the borrower.
PROSECUTOR: That just sounds like jargon to me.
BANKER (LOOKS UP): It is. I was reading it out from this book.
HE HOLDS THE BOOK UP. IT IS LENDING FOR DUMMIES.
PROSECUTOR: Oh, I see. A professional. So you had no qualms about advancing a vast amount of cash to a struggling soon-to-be-divorced man with a house in a vulnerable outer suburb, an out-of-control credit card habit and a hankering after fast-depreciating cars?
BANKER: Are you telling me or asking me? You can’t see questions marks in the air, you know. You need to indicate one by adding an upward inflection on the last syllable, otherwise you’re just making a cheap lawyer’s accusation hidden within the sophistry of sleight-of-hand language.
JUDGE (WAKES UP AND TURNS TO THE DOCK): That's very close to contempt of court. Carry on, Mr Prosecutor.
PROSECUTOR (AFTER A PAUSE DURING WHICH HE VISIBLY REDDENS): It was a question. Answer it.
BANKER: Fine. It was a question. Thanks for clearing that up. Now I’ll answer it.
Firstly, as I said earlier, I’m no seer. Nor am I a morals crusader, a nanny, a pastor, a household budgetary advisor, a schoolteacher of mathematics, an economics lecturer, a logician or a homespun philosopher. I’m a banker, even if the title is misleading today. Banks used to bank money, now they just it shovel it out the front door to passersby, who sometimes give it back, with interest. Sometimes. Maybe a bit less so lately.
But I haven’t the time, the inclination, the necessity nor even the legal capability of assessing a borrower’s home life, spending habits, financial intentions or any one of a number of other indicators of fiscal health beyond the current very limited criteria, all of which are government regulator-mandated, might I add.
HE TAKES A BREATH
Qualms? You know what? If you want that kind of banker you’re forty years too late. Once upon a time I could upbraid a borrower for daring to walk into my office without cowering in fear. Or for not wearing the suit he wore to church on Sunday. And if I felt mean that day, I could leave him languishing in an outer-room waiting chair for two hours with no magazine racks full of Property Investor or BRW Rich 500 or water fountain or Cafe Bar machine to keep him amused and he’d be all the more grateful when I finally decided to let him in.
In those days, for every loan I approved after long and serious contemplation, I’d knock back five after no contemplation at all. Plus, just try getting your wife to apply for a loan forty years ago and see how far she got.
ANOTHER PAUSE
OK, you’re shocked. Nowadays everyone think everyone should be able to get everything they want, including debt, and as much of it as you want. Sure. But you can’t have it both ways. The upside was, forty years ago you needed a thing called a substantial deposit, which demonstrated not just a propensity for saving but also provided a better borrowing-to-assets ratio. A cushion. Now it's 100% in the loan. Even more if you want to renovate or tour the world for six months or buy two cars or four boats or six franchises. As well as a deposit, you also needed another thing, called a job. These days it's different. I’m the one who has to dress up for a loan interview. The customer keeps me waiting. And the government tells me I have to loan funds to everyone without fear or favour or the Equal Opportunity Board gets a knock on the door.
Fine. I’ll lend to anyone. But don’t come after me when the whole house of cards finally collapses.
PROSECUTOR: Are you quite finished?
BANKER: I don’t know. You tell me. You seem to have all the answers this morning.
COURT POLICEMAN: Ah sir, Mr Kmart is back in the court.
JUDGE: Excellent. Have him stand.
PROSECUTOR: Mr Kmart. May I call you Joe?
MR KMART: No.
PROSECUTOR (COUGHS, ASIDE TO JUDGE): They all have attitude these days. (TO JOE KMART) Do you take any personal responsibility for borrowing out of your depth?
MR KMART: No. Why should I? The real estate agent told me house prices were rising so fast, mine would be worth at least $30,000 more by the time I took delivery of the car. That made the car free. Then, my credit card debt went from 19.5% to 4.99%, so I could spend a further twenty grand on it and call it an average of what, 12.25%? That's 7.25% less interest on every dollar spent on the credit card after the refinance.
HE SMILES BROADLY
See? I was way ahead already.
JUDGE (HALF TO HIMSELF): Yes. We really are in trouble.
HE GLANCES AT THE PROSECUTOR
Had enough of this?
THE PROSECUTOR NODS. JUDGE LOOKS AT WATCH OSTENTATIOUSLY AND YAWNS
Goodness. Is that the time? Court adjourned for lunch.
ALL EXIT INTO STREET AND ADJOURN TO CATERINA'S IN QUEEN STREET FOR LUNCH, ON THE CREDIT CARD.
Ah, I see that the financial situation where you are is pretty much the same as the situation where we are.
ReplyDeleteThe good news is that when everything finally crashes in a heap, savers like us will be in charge. The bad news is there won't be much of anything left to be in charge of.
You hit the nail on the head with this one!
ReplyDeleteNot your fault, a butterfly flapped its wings somewhere which eventually brought the whole house of cards down, which was situated in the room of smoke and mirrors.
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