How banks are betting with our lives

The royal commission into banking may uncover more scandals. The biggest scandal, however, is one already so evident. Our economy is the problem gambler. Our finance-led economy is betting on our lives.

These homes are costly not due to their shortage—we have many more homes without people than we do people without homes. Source: Getty Images

Water is wet. Heat is hot. This season of The Handmaid’s Tale will not be compared by any human critic to Bridget Jones's Diary. And, in other shocking news you’d just never believe: banks. Not temples of kindness, as it turns out. Tend to put profit before people.

If you’ve been following the royal commission into the banking sector, congratulations. I admire your appetite for agony, I am pleased to meet someone as irrationally fascinated by financial services as me.

If you’ve not been following the royal commission into the banking sector, congratulations. I envy your attachment to a full and joyous life. Envy, as you know, can tend to produce some bad behaviour, so here’s mine: if you do not read my vital words on the practice and influence of money-lending, I may attempt to extend the limit on that credit card issued to your low-income cat.

The royal commission may uncover more scandals. The biggest scandal, however, is one already so evident, it cannot be revealed. This is the big scandal: our economy is now dependent on the creation of private debt. Our economy is the problem gambler. Our finance-led economy is betting on our lives.

You see, the commission has found that not all credit card issuers will check the income of Pusskins before agreeing to give her more credit. We know that Pusskins lost her gig as Casual Mouser some time back. Notwithstanding her indifference to the credit card—she insists she used it only once, and that Two and a Half Men DVD boxed set was not the result of conscious purchase, but of having a sleep on your laptop—this could cost her dearly.

Parts of this account are untrue. First, banks do not routinely issue credit cards to cats. Second, Pusskins is a fan of Two and a Half Men. Other parts are truer than we would prefer them to be.

It is (obviously) true that banks offer credit. In fact, that’s the core business of banks. Banks are built on our debt and it may have shocked you, as it always shocks me, to learn that of “pre-approval” for credit.

Banks do not put profit before people because they’re nasty. They put profit before people because they must.

My big bank offers me, a person they know to have zero assets and irregular income a lot of credit. Let’s suppose that my bank has spent some of its profit on a calculator. They would arrive at the conclusion: Helen would need a Division 2 Lotto to ever pay this back. She’s ours ‘til the end of her life.

In good news, legislation to end this pre-approval practice has recently passed. But, this legislation comes at a time when Australians have already racked up $32 billion in credit card debt. And, the low-income earner still cannot be sure if banks—those institutions who advertise themselves as sensible and handy with a calculator—will refuse our requests for more credit.

Now, you could be all hard-nosed here. You could say that the man who declared himself to be a problem gambler to his bank but had his credit limit increased by that bank nonetheless created his own debt and misery. You could say that all of the Australians on a low, and typical, wage should not buy what they can’t afford. You could say that we knew what we were getting into when we agreed to high fees, high interest and credit far more expensive than the cheap money offered to already wealthy investors.

Or, you could see debt, and the banks who create it, as now so fundamental to our economy, none of us has the choice to free ourselves from it.

Debt, and the banks who create it, as now so fundamental to our economy, none of us has the choice to free ourselves from it.

If you’ve been following the findings of the inquiry, you’ll know that the sorry tale of credit cards are but a chapter in a big financial fiction blockbuster. You may have heard of the dead people charged bank fees. You may have heard of that large wealth manager that lied about is conduct. You may have heard about the sale of junk insurance, the predatory targeting of low-income earners or the many services paid for, but never received.

What you do not hear as often as you should is this: banks do not put profit before people because they’re nasty. They put profit before people because they must. If banks are to continue their central role in our national economy, they must create debt.

You could say that Australia’s number one product is now private debt. Private debt is what we make here in Australia. This private debt, now in the trillions, is due largely to mortgages for homes. These homes are costly not due to their shortage—we have many more homes without people than we do people without homes. These homes are not costly because everyone is nice and rich and ready to pay top dollar. These homes cost exactly as much as a bank is prepared to lend.

The royal commission may uncover more scandals. The biggest scandal, however, is one already so evident, it cannot be revealed. This is the big scandal: our economy is now dependent on the creation of private debt. Our economy is the problem gambler. Our finance-led economy is betting on our lives.