You Owe The Bank Nothing

House prices in Ireland as a multiple of average income. (Source: Morgan Kelly, Finfacts)
House prices in Ireland as a multiple of average income. (Source: Morgan Kelly, Finfacts.ie)

Somebody on the radio saying they’re going abroad to declare bankruptcy. A different holiday idea I suppose. Naturally others soon phoned in to object to this “moral hazard“, as the banks would like us to call it. It was wrong they said to walk away from your mortgaged home just because you owed more on it than it was worth.

That got me thinking about what debt actually means. Is there a moral obligation to repay?

Well of course there is. It’s a matter of trust, which is what morality is basically all about. If you’re in a business, you were given materials and help by your workers and suppliers. You are obliged to pay them so they in turn can pay their helpers and suppliers and so on. The wheels of the economy keep turning and everyone gets fed. A financial debt is a promise like any other.

However there is one important qualification. You are only indebted when and if you actually receive something.

The banks will argue of course that they gave you money when you signed that mortgage so you are obviously obliged to repay it, along with the agreed interest. But the thing is, did they actually give you money?

No. They never gave it to you, because they never had it to give to you.

I don’t mean they didn’t have it in their vaults; we all know that’s not how finance works. All loans are borrowed, when it comes down to it, from the future. They’re based on the reasonable prediction that most of the time they will be paid back in full and with interest. But when the banks decided instead to start making ludicrous loans for several times the value of the houses they were raised against, thereby further escalating the price of housing and so allowing them to offer even bigger loans, they knew that ultimately the whole thing had to blow up. The loans were fake. There was no money in the future to borrow from.

When the inevitable crash came the banks of course had a parachute: They were too big to fail – or so at least they managed to convince themselves. And with themselves convinced they had little trouble convincing the political parties they were going out with – who effectively promised that they would make this impossible future money somehow magically become real money.

Or to be precise, they promised that we would.

The money you seemed to get from the bank ultimately came therefore out of your own pocket. You were tricked into lending it to yourself so that they could take a cut. It’s immoral to stop repaying that? It’s probably immoral to keep going.

ESRI public debt
The surprising result of neo-liberal economic policy – massive public debt.

Besides, you will only be a little ahead of the crowd. It should come as no surprise that even with all of us working together we can’t actually afford to turn the banks’ lies into reality. The State itself is going to default at some point. That is as inevitable now as the property crash was. Our public debt is soon going to be 200% of GDP, and the harder we try to pay it the less we will be able to; we are being crushed in fact by the burden of trying. Actual people being crushed, by imagined money.

The sooner we all default the better.

4 thoughts on “You Owe The Bank Nothing

  1. What happened to the Greek FinCorp debt in that graph? How did it come to vanish (assuming it was there when the turmoil started)? I’m mostly curious about the mechanics that led to these conditions. For once I’ll leave my ideological rant aside until I understand what I’m about to rant about.

    The size of the US’s FinCorp debt is another eyebrow-raising data point. I’m sure a few pitchforks could be mustered around that tiny debt figure.

  2. What happened to the Greek FinCorp debt in that graph? How did it come to vanish (assuming it was there when the turmoil started)? I’m mostly curious about the mechanics that led to these conditions. For once I’ll leave my ideological rant aside until I understand what I’m about to rant about.

    The size of the US’s FinCorp debt is another eyebrow-raising data point. I’m sure a few pitchforks could be mustered around that tiny debt figure.

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