Voice From The Back: All Right For Some . . . (2012)

The Voice From The Back Column from the February 2012 issue of the Socialist Standard

All Right For Some . . .

We are told every day by the mass media that we are living through an economic downturn, but some seem to be surviving it rather well. “Rolls-Royce Motor Cars has reported record sales for 2011, having sold 3,538 cars. Sales at the BMW-owned luxury marque grew by 31% from the previous year, although the growth rate was weaker than in 2010 when sales jumped by 150%. Rolls-Royce’s £165,000 Ghost model, which is smaller and less ostentatious than the £235,000 Phantom models, has been the main driving force for sales” (BBC News, 9 January). Bentleys have been selling well too. “The luxury carmaker Bentley has defied the economic gloom with a 37% surge in global sales” (Guardian, 3 January). So while members of the working class are told to tighten their belts the owning class are still buying their Bentleys and Rollers in increasing numbers.

… But Not For Others

Politicians are fond of speaking about ‘family values’ and love photo opportunities that depict them as happily married decent individuals. In practice, though, when defending the profit margins of the owning class they ruthlessly attack the living standards of working class families. “Families with children will be hardest hit by tax and benefit changes aimed at cutting the deficit, a charity argues. The Family and Parenting Institute (FPI) says the average income of households with children will drop by 4.2% between 2010-11 and 2015-16, the equivalent of £1,250 a year. Average household income however will fall 0.9%, or £215 a year, say the FPI” (BBC News, 4 January).

Another Empty Promise

An ex-Prime Minister, Margaret Thatcher, once boasted that we lived in a property-owning democracy, but that boast seems somewhat laughable today. “Almost a million people have turned to a high cost payday loan to cover their mortgage or rent in the past year, the homelessness charity Shelter has claimed. A further 6 million have used other types of credit, including unauthorised overdrafts, other loans or credit cards, to help pay their housing costs, it said (Guardian, 4 January). It seems we now live in a pawn ticket owning society.

An Inhuman Society

Capitalism is a society that constantly attempts to cheapen production so that it can boost profits. This drive is not confined to the factory; it also applies to the hospital. “Hospitals have been accused by ministers of treating patients ‘like parts on a production line’ after official figures suggested that hundreds of thousands of people every year are being sent home before they are well enough. More than 660,000 people were brought back to hospital last year within 28 days of leaving, statistics show, sparking allegations that patients are being hurried through the system so the NHS can meet waiting-list targets” (Daily Telegraph, 29 December). Needless to say, this heartless treatment only applies to members of the working class. The owning class enjoy the best possible medical treatment just as they enjoy the best of everything that society can provide.

The Season Of Goodwill?

During the big sales drive of the Christmas period advertisers put great emphasis on phrases like ‘goodwill to all men’ and ‘peace on earth’ but there is one group of salesmen who don’t rely on such nonsense. The gun manufacturer and arms dealers know that Christmas time is a boom period for gun sales. “According to the FBI, over 1.5 million background checks on customers were requested by gun dealers to the National Instant Criminal Background Check System in December. Nearly 500,000 of those were in the six days before Christmas. It was the highest number ever in a single month, surpassing the previous record set in November. On December 23 alone there were 102,222 background checks, making it the second busiest single day for buying guns in history” (Daily Telegraph, 1 January).

Cooking the Books: Death of a Loan Shark (2018)

The Cooking the Books column from the October 2018 issue of the Socialist Standard

So Wonga, the notorious payday lender, has gone under. Very few will be shedding a tear. As a payday lender, its business model was to make small, short term unsecured (i.e. with no collateral) loans out of its own money. You could get a loan of £50 for a week if you wanted. Because there was no collateral, e.g. no house or car to repossess, and no serious credit checks, the risk of default and cost of recovering it was higher and so therefore was the rate of interest.

Since 2015, regulations have limited the maximum interest that payday companies can charge to 0.8 percent a day. That’s still quite steep – 80p per day on a loan of £100 for 30 days is about £24. Before that, companies like Wonga – and Wonga in particular – used to charge more than twice as much, with stiff penalty charges for not repaying on time.

One reason why companies like Wonga exist is that banks won’t touch poor people in need of short-term loans. But what is the difference between a moneylender and a bank? Some think that when a bank makes a loan it ‘creates’ money. The reasoning behind this is that, as the amount of the loan will be spent, when it is this adds to total spending. But why is this reasoning not applied to payday lenders or to other lenders such as credit card and car finance companies? Their loans also add to total spending.

One reason why loans by such financial institutions should not be regarded as creating new money is given in a short online article ‘Are credit cards a form of money? Credit cards and the money supply’. The author gives the example of him borrowing money from his girlfriend to buy a video game, and concludes:

‘[M]y debt to my girlfriend would not be considered money because she cannot use it as a form of money to make purchases and it is not trivial to find someone who is willing to pay her cash in exchange for the loan. The loan is a mechanism in which money will be transferred from me to my girlfriend, but the loan is not money itself. When I repay the loan I will pay her $50 which will be in the form of money. If we consider the loan as money and the payment of the loan as money we’re essentially counting the same transaction twice. The $50 my girlfriend pays the shopkeeper is money. The $50 I will pay my girlfriend tomorrow is money, but the obligation I hold between today and tomorrow is not money’.

This makes sense. The loan, i.e., the IOU to his girlfriend, is not money. What is money is what is used to pay for the video game and that was not ‘created’ but came from the girlfriend.

It’s the same with a credit card. The credit card company pays for what you purchase and you repay by the end of the month. In the case of a payday company, it lends you the money first until your next payday, and when you get paid you pay it back (with interest).

The difference between a bank and other lenders is that they are lending their own money whereas a bank is lending other people’s. This makes following what happens more complicated but the principle is the same. When the borrower buys something out of the bank’s loan, the bank pays for it, normally by a bank transfer to the seller’s bank, just as a credit company does. You pay the bank back later.

How, then, is a bank loan different? Good question.