Flabbergasted. That is the only word I can use to describe my reaction to the financial crisis that is unraveling around the globe with the ruthless force of a tornado. I am dumbstruck. Quite frankly I don’t understand. Am I alone to feel this way? To read the papers, to see the figures and the charts, to see the look of panic in those normally arrogant bankers’ faces or to recognize the fear in the face of politicians who are throwing buckets of water at a raging fire and hoping for a miracle.
At first I was in denial. Back when it was just about subprime lending in the US and the headlines were dominated with banks with childish names like Freddie Mac and Fannie Mae, I could push it away as a fairy tale gone wrong in a distant alien land. When Lehman Brothers went down, and shortly afterward AIG, it became more a question of disbelief — in my mind these institutions were as safe as houses as the English say. And just to shake me up some more, house prices in Britain started tumbling down, and in other countries in Europe too. Estate agents — and I have friends in that profession — are having the rug pulled from under their feet. Falling prices would be one thing, they would earn less, but there would be income coming in. Whereas what we have is a situation of wait and see, where people are terrified of making an offer on a property now because they just don’t know how much that property will be worth tomorrow, combined with a shutdown of mortgage lending. Obtaining a loan to buy a home has become a Herculean task in today’s financial climate. No finance, no house sales. No house sales, no income.
So brokers, bankers and estate agents are suffering. Many of us will not show much sympathy. These are people who were raking it in during the times of the boom. They were a crucial part of the chain of people who encouraged other people to borrow money above their income to buy homes they could not afford — to create a property bubble which sooner or later would bust, and it sure did. To say that nobody saw it coming is a lie. Wise voices have been whispering for years about the dangers of speculative bubbles. Others have long raised the alarm about debt-led growth.
As a Muslim, I have long had it drummed into me that borrowing and debt is to be avoided. I certainly don’t want to make a religious or a political issue out of this crisis, but it strikes me that it is dangerous to blind yourself to old wisdom. The reality of the modern world is that companies need to borrow in order to grow, just as individuals need to borrow in order to buy a home or a car or make other big purchases. Borrowing is to some extent a necessary evil. But it is something not to be done lightly, that should be carefully thought through and evaluated. When I was younger, growing up in Britain, getting a loan was complicated and required a good relationship with your bank manager. In the last few years, getting a loan could be as simple as signing on a dotted line on a form that arrived unsolicited in that morning’s post informing you that you have been pre-approved for a loan and that you can spend it on anything you like. Just like that.
And as for buying a home, we’ve moved from having to pay hefty deposits and satisfy stringent requirements to show that we have a steady and secure income, to mortgages that can cover almost the full cost of the property and that can be self-certified.
Writing this feels like a U-turn for me. Self-certified mortgages appeal to me morally. My view — and I accept that it is unorthodox — was that since a mortgage is guaranteed on a property, the banks should share the risk. My bank manager can advise me on whether or not the mortgage I am taking is going to be within my means, but it is my responsibility to sign on the dotted line and say I will pay you X per month over Y number of years. The bank’s responsibility is to ensure that the value of the home that I am buying and which is securing my loan matches the value of the loan. If I don’t meet my side of the bargain, if I default on my payments, they take the property. That is the whole point of a mortgage. Generally speaking, house prices rise over the long term, mortgage lenders have very little to lose. In essence, I saw the role of mortgage-lenders as facilitators in property investment as opposed to people selling money.
Or that was my logic until the recent crisis. Clearly it is a good thing I never considered a career in finance. And yet, the brightest and best-paid minds in finance have landed us in a mess which has not only brought down financial institutions like a house of cards but which is now on the verge of bringing down a whole country.
But what makes me red-hot angry is that it is regular taxpayers who are paying the price and that people like Richard Fuld, Lehman Brother’s chief executive, can claim to take full responsibility for their actions and yet get off not just scot-free, but with millions of dollars in their pocket and the assurance of a comfortable, luxurious life for the rest of their days. It makes no sense. Just as I am flabbergasted that stock markets can tumble so easily and be at the mercy not of economics and the financial performance of the companies whose stocks they sell but of the gutless irrationality of human fear.
