Wednesday 5 August 2020

Sacrifices to the deities

Prehistory

A long, long time ago (or way way back, many centuries ago, depending on which songwriter you prefer), people used to kill - but not to eat the prey, nor to conquer their land, nor to exact vengeance.

This would be a sacrifice. Something has gone wrong and something needs to be killed to appease a deity. Or something hasn't gone wrong but might go wrong unless something is killed to appease a deity. (I realise I'm oversimplifying.)

Now, looking back on it, these quaint if uncomfortable practices seem ludicrous to us. Killing a sheep (or goat or great-uncle) isn't going to make a lot of difference to whether there's enough rainfall for the crops. We see that now. And we feel that we wouldn't get tangled up in that sort of practice again.

Nowadays

During these days of global financial slowdown due to global pandemic affecting, er, the globe, the British government has instigated a scheme for people to take a holiday from mortgage and loan repayments.

But holiday is a bit of a strange word. Imagine a holiday where, for every week off, you had to make up the five days over three weekends after you came back. Not really a holiday, is it? More a work-shift, except that it's grown a bit - those five days have become six and you're going to be seriously knackered when you stagger to the end of the fourth Friday since the first Monday with no weekends to break up the load.

Because the interest on the loan will continue to accrue over the payment holiday so, when you restart payments, they will be bigger. Over the lifetime of the loan, you will end up paying more interest.

Barbers have had three months of no income. Restaurants have had three months of no income. Gyms have had three months of no income. Airlines have had three months of... You get the idea.

But banks? They've just given you a bit more of a loan, at the usual rate, and they'll be wanting their money back, with interest (and interest on the interest). Why?

Short answer - because they can.

To continue my tendancy to oversimplify - when you or I successfully apply for a loan from a bank, the bank makes the money out of thin air (because the nation's central bank says they can), squirts it into your bank account and charges you interest for borrowing this newly created money, which they then get back over the loan period.

The bank has to 'borrow' this money from the nation's central bank, which it does at the so-called base-rate (in the UK today it is currently 0.1% - by contrast, the Nationwide's standard mortgage rate currently stands at 4.24%). So for every £100,000 which the Nationwide lends to a standard mortgage rate customer, every year they pay the Bank of England £100 in interest but gain £4,240. A profit of £4,140 per year.

I know they have to do so much admin to run the account, but I think they can probably use economy of scale to make sure the costs don't wipe out the profits.

Instead of a payment holiday/loan/postponement (call it what you like), there could have been a real payment holiday. The sort where your payment doesn't send you emails while you're on the beach and expect you to answer them immediately. The sort where everything just stops for three months. Nothing needs to be paid, no extra interest is charged, the end date of the loan skips three months down the road. It's as if, financially, those three months don't happen.

And if mortgages don't need to be paid, rents can be reduced accordingly. Because the barber, the restaurant owner, the gym company - they have no money coming in the door but the landlord needs to be paid. Why? Because the landlord has a mortgage/loan to worry about.

And where does it all end up? Why, the banks, of course. So how about they take a similar hit to everyone else? No repayments for three months with no interest added for them to gobble up later.

(In the same way that I'll have a haircut when the barber reopens, but I won't expect him to charge me for three haircuts to make up for the two I didn't have while he was shut.)

But the banks! How will they cope?!

Just like everyone else, I suspect. They could have furloughed some of their staff, shut down unneeded offices and, guess what, their rent bill can be cut too. Because their landlord won't owe any money to the bank for that period.

Instead, we make our sacrifice to the deity, just as we've always done. Something bad has happened but we must commit a painful act to the benefit of the god, or it won't get better. Or the god will get angry and things will get worse.

Future

Will a human of the future look back on this time with the same puzzled shrug as we look back on sacrifices in days of yore? Will they wonder why we inflicted these punishments on ourselves to placate an entity that doesn't really exist and wouldn't help us even if it did?