Teresa Hunter: United we stand, Together we fall

Published on Saturday 16 January 2010 14:09

ALONE we can do so little, together we can do so much, is a saying which applied in bucket loads to disgraced home loan company Northern Rock. Or to be precise, to its "Together Mortgage".

Rock was the kamikaze lender which put young house buyers into the cockpit of homeownership, strapping deadly explosives to their legs, in the form of loans worth 125 per cent of the value of the property they were buying. When these detonated, bank, borrower and taxpayer all went down together.

I struggle to think of a financial commentator with a good word to say about them at the time, but regulators looked the other way. Even so, it came as a shock to hear new chief executive Gary Hoffman tell members of the Treasury Select Committee that this product represents a third of the bank's lending.

Worst, it accounts for half the arrears, and two thirds of repossessions. "Together" arrears are running at three times the rate of the rest of the industry.

We should cry when we look back on how we allowed banks to hypnotise inexperienced borrowers with false dreams. Many will take years to recover.

So I take my hat off to US President Barack Obama for having the guts to place a punitive levy on the banks, which will recoup taxpayers' money and give institutions cause to think again before behaving recklessly in the future.

Chancellor Alistair Darling has already attempted to cut bonuses here on a smaller scale. But his proposed levy will trim profits by 1 per cent compared with the US's 10 per cent charge. Some say he should go much further.

Maybe. Banks only have profits because taxpayers bailed them out. The public will not sit back and watch chinless wonders pick up big bonus cheques for performance we have bought for them. Not when their own companies are going belly up.

On the other hand, we must not allow politicians to scapegoat bankers for problems not of their making. Our public sector debt crisis is the result of government overspending. That's not the bankers' fault.

I'm reasonably confident the much lower sum borrowed to bail out Northern Rock et al will be recouped when these institutions are sold. Across the page, the wider deficit can only be cured with a rampant surge in economic growth (unlikely) or spending cuts. Speaking of the Rock, they clearly never read Shakespeare. He said the danger of trying to bundle everything together (I paraphrase) is you end up with "sweet nothing".

With-a-bit-of-profit

HOMEBUYERS, pension savers and other investors must feel trapped by "heads I win, tails you lose" insurance companies, now that the with-profit bonus season is under way.

Last week, Aviva was the first of the giants to declare its bonus for the year. For once, there was no catastrophic news. Payouts aren't tumbling. But any hopes of cashing in on recent stock market rallies were certainly dashed. The Norwich Union fund grew over the year by just 6 per cent, at a time when the FTSE climbed by a third.

Even other insurance funds, known for being dull, looked perky by comparison. The ABI all-share fund was up 30 per cent, and top UK equity funds by 40 per cent.

Pensions blow

IN THE light of concerns I expressed last week that a worrying number of employees could be worse off following the introduction of the government's compulsory pensions, a figure of 44,000 companies has emerged. This is the number of firms which have told the government they plan to reduce existing contributions to pay into the new Nest pensions of those currently receiving nothing.

On the conservative estimate that these firms each have 100 such employees, and the figure could well be much higher, that leaves more than four million workers about to see their pension cut.

Debt lesson

I WAS saddened by the story of the 61-year-old woman who jumped to her death from the roof of a church because she had run up debts on 14 credit cards and a 25,000 bank loan. If you know anyone harbouring similar thoughts, reassure them they have nothing to worry about. While not suggesting people routinely disregard their debts (unlike the banks, I could say!), the bottom line is there is little lenders can do to get unsecured credit, such as credit card debts and personal loans, back.

They can't put you in jail, and they can't take your home away. In many cases, you can tell them to go sing for the money.