The Great Unanswered Question

Disclaimer: I’m not an economist and I’m not proposing a solution to this problem, this is simply a morbidly humorous satirical take on why banking is such an unjustly profitable business and how it is now, after causing global crisis, descending to pick at the bones, starting on our education system.

The premise: It is universally accepted that the sub-prime mortgage crisis triggered the global financial disaster. Sub-prime mortgages were loans sold to poor people to buy houses. A house, worth purchasing by it’s nature has two critical properties that education doesn’t:

1. Under normal circumstances it rises in value in real terms every day.

2. It is a tangible item that can be re-sold, re-mortgaged and is generally, well, a real thing that you can put your hands on without needing a time machine.

Therefore theoretically when the individual defaults and the house is taken back by the landlord no real money has been lost. Only two people lose out, the first is the individual who is thrown out of the house and pursued for more imaginary money that they are deemed to owe. That was sad but didn’t result in crisis. The reason this practice resulted in crisis was to do with the banking community’s inevitable failure to succeed in their cruel aim of pursuing these people for said non-existent money (as well as other nasty stuff like betting with each other about how poor all the poor people would be the following week).

This is a house, it is real

Lge NewHouse1E An Open Letter To The Bankers

Now we are planning for the first time in history to sell loans of 35 grand plus to kids and worse, do this on behalf of the very same bankers and institutionalise this process. This money is not going to be realised until the individual earns over £21,000 (and this figure will rise with inflation).

So if the individual pays £30 a month as proposed, this would take in excess of 92 years of earning £21,000 to pay off the sum of £35,000*.

*Assuming the graduate begins studying at the age of 18 and is on a three year course and borrowing about the average for living expenses and gets a job immediately after graduating payments would be completed at the age of  113. This would not be counterbalanced by successful graduates who earn more, they would pay the same, just faster and therefore with less interest.

113 is also ironically the age of the worlds oldest man

ap080613046046rip  oPt An Open Letter To The Bankers

Over these years the total sum will rise with inflation  so that when our hypothetical student has been paying back his loan for 50 years the loan may be double or triple it’s initial size. It would also accrue interest which will further raise the sum substantially. This would further speed the rise of inflation, etc, etc. These additions have not been included in the above calculation.

The aim of this crazy plan is to push funding responsibility from the tax payer and the state, who are supposedly responsible to bankers who only deal in profit and and “futures“, i.e. imaginary money.

This is imaginary money borrowed from the future

pile of money An Open Letter To The Bankers

What hasn’t been explained by anyone is where this money is actually being generated. In what way is this imaginary money being loaned by private bankers different to the imaginary money loaned by bankers in the sub-prime crisis? Surely this money is even more “imaginary” because education is not an object you can take back, like a house. Many students can and will emigrate, become addicted to drugs, become sick, die, fake their own deaths and find endless other creative ways to default on their payments, and they will have reason to. They voted, were cheated, they protested, they got beaten round the head by the establishment both literally and metephorically and have not been given one good reason to stay in this freezing country to spend the rest of their lives paying “back” the interest so it can line the pockets of bankers. There won’t be the same ethical imperative to repay, it’s not going to a tax like the current one that feeds back in to the system, it’ll be viewed as corporate robbery feeding bankers around the world who don’t pay tax and exploit people. This will be the same generation that is currently rioting, they will have the same moral high ground and the same enlightened self interest. Unfortunately the most popular way of not paying back the money will probably be good old fashioned tax evasion.

The banks will get paid back and profit, because that’s what they do and the public purse will suffer tax evasion when it could have been the one profiting. The Student Loans Company is already a shambles, currently failing to process the majority of applications by the start of term and being infamous for it’s failure to ever answer the phone leaving students unable to study and skint often for over 3 months, forcing the poorest to drop out. It beggars belief that these people are taking a job that the government has been doing perfectly well for decades via the tax payer, is doing it worse and expecting to collect a tidy profit that previously would be reinvested via the tax system and will now be extracted to fund the rich. I’m pretty sure they’l be more competent in their ability to break down doors to collect their profits than they are in giving loans in the first place. If not they will simply sell the debt to someone who is. A task which itself is incredibly profitable. This is why gas and electric companies sell un-paid debts to debt collection companies. Debt collection is one of the most profitable industries there is, because it simply involves taking peoples things and selling them. The selling of student debt is perfectly legal under the Sale of Student Loans Act 2008, titled: “An Act to enable the sale of rights to repayments of student loans”

student loans An Open Letter To The Bankers

The debts are sold to lovely people like this:

“At xxx, we specialize in debt purchasing from companies that are interested in debt selling. With our talented legal network, we aggressively pursue debtors on our clients’ behalf. By collecting the debt, we serve the interests of our clients. At the same time, clients who are selling their debt to us provide our investors with a sizeable return on their investment.” – taken from a UK debt collector’s website

Debt is  sold just below it’s expected value in real terms, so if the average student is expected to pay back £15,000 of a £20,000 loan plus inflation rate interest, then the government might sell that debt for £14,750 for example. Risk is transferred, because after the loan is sold, whoever buys it will be out of pocket if the student cannot pay up. They therefore have a vested interest in making your life a misery.

Bailiffs hired by her majesty to remove camp for democracy protestor from Parliament Square

evitcted 415 An Open Letter To The Bankers

I’m going to make a prediction right now and if any bookies want to take me up on this I’d love to see the odds they give me.

My prediction is that if this becomes law in it’s current form then in 20 years, inflation will have reached the point in which we’ll be metaphorically wheeling our money around in wheel barrows and have an even greater international debt problem than America has now. This will become known as the “student loans” crises and our kid’s will marvel at how we didn’t see it coming, just as we marvel at how the banks didn’t see the sub-prime crisis coming.

Pile Of Money psd36108 An Open Letter To The Bankers

All of this might seem like a vaguely workable idea if we hadn’t just bailed these people out to the tune of billions for doing the exact same thing to people in America. . The very same people we’re about to begin borrowing billions of dollars from. In reality these people don’t really have any money at all and the money they do have they intend to profit from.

This is a representation of what imaginary money looks like

matrix numbers An Open Letter To The Bankers

This money the bankers are “lending” to our young people is in reality just a few 0’s and 1’s on servers in banks, and as we saw this week with Julian Assange’s swiss bank account, the flow of this money can grind to a still in a heartbeat if it fails to continue to serve the interests of those in power in other countries at any given time, because it doesn’t really exist. We are not really borrowing from these people at all, we are borrowing from our future selves and paying these clowns for the pleasure. When this all comes crashing down again the people of England will have to pick up the bill because the bankers sure as hell won’t. That won’t mean they won’t go after you for the rest of your life. This really is one of the most ingeniously devised crimes in our history.

Anyway, this whole debate about fees is a total distraction. It’s taken thousands of years to develop state sponsored education and it’s projected our society to where it is now and this principle has been destroyed in one night. Do we really want to live in an uneducated society with no adults who understand it’s history on a high level. How will we evolve as a nation if we have noone to teach us the mistakes of our forefathers? All just because we pulled funding for humanities and sold our soul to the banks. A society where the few that tried to better themselves for the benefit of others spend the rest of their lives in poverty or living in silence on the run from the bailiffs. Will the last educated person in Britain turn off the lights on their way out.

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  • Richard Cooper

    I want to expand on this reply later but I’d like to address a couple of points now. First of all I’m not an economist but I do have an interest in how all of this works. I agree with your main point. It’s crazy how much the fake economy can damage the real economy. Making money from money doesn’t help the human race in any way. It diverts people away from persuing useful careers such as science and engineering. For something significant to change, the entire system would have to be altered. With that said, I’d rather explain how it works now.

    1. People did benefit from this. This was the largest transfer of wealth from poor to rich that there has ever been. People with money can now buy up foreclosures at rock-bottom prices and wall street was allowed to keep their bonuses at the expense of poor.

    2. Your inflation argument is a bit misleading because wages also rise with inflation.

    3. Inflation is the least of our worries. Right now, we have an employment crisis. If anything, what we need to do is increase the supply of money through government spending. These austerity measures that everyone is talking about will just make things worse.

    4. Increasing student fees will do just the opposite of causing inflation. It is basically a reduction in government spending which will pull money out of the private sector.

    5. You’re right that the imaginary money lent by banks is no different in each case but that’s how money is created. It doesn’t come from anywhere except the balance sheets of banks. The amount of money banks are allowed to lend is limited by assets they have due to rules imposed on them. It is also linked to reserve balances at them central bank.

    I’ll post more later.


  • Richard Cooper

    Could you elaborate on your distinction between ‘real’ and ‘imaginary’ money. I can’t see much of a difference between worthless pieces of paper and numbers on a spreadsheet. They’re all just elements of a fiat currency system.

    When you say the government deals in ‘real’ money, what makes the numbers on the central banks computer any more real than the numbers on a private banks computer? Despite what a lot of people think, most of government spending and taxes are dealt with through numbers on computers and not physical money. When was the last time you went to the post office with a pile of cash to pay your taxes?

    I want to add that I agree with you that this is a horrible policy and education should be funded, but I think the reasoning is important.


    • Neurobonkers

      Thanks for the comments Cooper, I think you answered your own question with your second post, money made from money is exactly what Im referring to by “imaginary money”, let me clarify…

      1. What I mean by real money is money that is earned through productivity, i.e. creation of something of saleable value. Government funding is limited by how much it earns through tax and this is they way it should be. When you begin entering the area of state borrowing you irrevocably muddy the waters because the financial standards of the economies you are engaging with are necessarily out of your control and the money you are borrowing is money earned through professional gambling, what I mean by “imaginary money” is dirty money, money created with no productivity, this money devalues the rest of the currency and that’s bad for everyone who earns their own money.

      2. Yes wages rise with inflation, but thats just a convention, it’s not enshrined in law, in hard times wages stop rising.

      3. Totally agree, and damaging education markets damages employability directly.

      4. This is where I think we are being mislead:

      Lending is an incredibly profitable business, something we clearly agree on. Therefore how is it in anyway a good idea to pass on the job of collecting this profit to anyone but the state? Education is one of our biggest exports.

      Not only are we giving up our ability to profit from this but we are actively blocking foreign students who already pay over three times what english students pay. I quote from @ukhomeoffice twitter 7th December “Contribute your views to our consultation into how we can best reduce the number of students who come to the UK”. This seems to be the equivalent of selling the crown jules to pay a ransom.

      5. That was the case before the crisis but we stopped playing by the rules when we bailed out the banks.

  • Richard Cooper

    Thanks for the reply. We completely agree main point but we still disagree on a few key points.

    Now I understand your distinction between real and imaginary money and I agree. Regarding wages, yes, they will not rise in hard times but neither will the balance of the loans for the most part.

    Government funding is not limited by how much it earns through taxation. The government creates the money through the central bank and recovers some of it back through taxes to prevent excessive growth in the supply of money. The government doesn’t even need taxes to spend. Balancing the budget is not how it should be or it would not be possible for the private sector to save. How can the state borrow if it creates the currency? How can you borrow back your own IOU?

    There are a group of economists who are trying to get the message out about how the monetary system works. Most of the main stream economists seem to be talking as if the currency was still backed by some sort of commodity.

    This guy really gets in to the nitty gritty of a fiat currency system.


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