'Sinful' model of lending brought world's economies to their knees

Published on Monday 9 March 2009 21:13

The root cause of the current problems with capitalism lies in the age-old sin of "usury". There are, broadly, two ways of lending money – "usury", where the lender charges "interest" for the use of the money and the borrower has to return the loan in full, and "equity", where the lender shares the risk with the borrower that the loan might not be repaid in full but shares any "dividend", or profit made.

Banks have failed to keep this distinction in view, trading usuriously to people who have little hope of returning the loan in full, let alone paying the rate of interest, where the security is far short of the value of the loan and where the effects of calling in the loan have disproportionate consequences to the borrower, such as being bankrupted or turned out of a home.

The engine of economic prosperity lies not in usury, but in the alternative. But this is being swamped by usury as lenders flee from risk, credit dries up and the state prints money to devalue outstanding debts to reduce the banal effects of usurious lending and to try to rescue some political credibility out of the ruins it has created.

There seems general agreement that it would be undesirable to go back to the "good old days" of unbridled usurious lending. The obvious alternative is to outlaw usury and ensure that everyone shares the risks and benefits of using money productively.

(PROF) FENTON F ROBB

North Street

Eyemouth, Berwickshire

The Labour Party has previously had a lot to say about the wide boys in the City, with their sharp practices and devious schemes to rig the markets. Now the government is indulging in its own form of market manipulation, using the pretext of "quantitative easing" to rig the market in UK government bonds, or gilts.

While one arm – the Treasury's Debt Management Office – will continue to sell new gilts to fund the government's burgeoning budget deficit, another arm – the Bank of England – will use money produced out of thin air to buy up existing gilts.

No doubt the former will be grateful its task has been made easier by the the latter, mopping up surplus gilts and maybe even ensuring a shortage.

It serves no immediate economic purpose for the bank to use two-thirds of the 150 billion it will create to buy high-quality assets, gilts; the 100 billion it will inject into the gilts market will migrate into the government coffers, via the Debt Management Office. So what is this, apart from a device to ensure the government can maintain or increase its expenditure at a time of falling tax revenues?

Would it not be more straightforward if the bank credited that 100 billion to the government's account?

And surely the Financial Services Authority, should point out to the government that even if this flagrant market abuse is legal, it is unethical.

(DR) D R COOPER

Belmont Park Avenue

Maidenhead, Berkshire

Gordon Brown made a tendentious statement in saying Scotland could not have saved its banks if it had been independent (your report, 7 March). It might equally be said that an independent Scotland would not have got itself into the present situation in which it has lost its oldest bank and finds its largest bank in a perilous position.

An independent Scotland would scarcely have been in that wide field of operation which enabled Sir Fred Goodwin to conclude his vast and ultimately disastrous acquisitions. On the whole it seems small countries have had less trouble than the UK with their banks.

(REV) J MCL RITCHIE

Crogt-an-Righ

Edinburgh