Tuesday, 31 January 2012

Housing - the Benefit of Mutuals

Hidden as a footnote in the BBC business news today is the report from the mutual Building Societies Association that in 2011, approved lending in this not-for-profit sector rose by a substantial 15% overall, with a massive 49% increase in mortgage lending. At the same time, the corporate banking sector saw a small decline in overall lending in spite of the increasingly desperate efforts of the Con Dem Government to get the "Masters of the Universe" as the financial PLC sector used to refer to themselves to lend cash to get the economy out of the doldrums.

Mutuals have long been advocated by many in the socialist and green movements as a key part of the solution to a free market economy based on speculation and accumulation. Formed out of mutual aid friendly societies as long as the late 18th century, British building societies have always worked on the basis of sufficiency - never lending more than came in and limiting what members could take at any one time; and, critically, not seeking profits for any purpose other than reinvesting in the business. There are no shareholders, no owners and no money taken out.

The result was that by the late 1980s, the sector was large and healthy, and at that stage still relatively diverse in spite of a trend of mergers. But the Thatcherite era saw an infusion of new possibilities for financial mutuals first of all to diversify their services and then to "go public" - become publicly listed companies making profits for shareholders. In other words, to become banks. Key to this was the 1986 Building Societies Act, as Thatcherite a piece of legislation as you could possibly find, which paved the way for the cash-grab of the bankers.

I briefly worked for the Bradford-based National & Provincial Building Society in its last days as a mutual. As its Board tilted towards de-mutualisation, scores of high paid executives were imported from the banking sector in a veritable frenzy of backslapping bonus-sharing as they strove to find ways to become a bank. In just three years, the number of Directors increased from six to over 60. Many staff in what had been a major local employer and a means of fostering modest home ownership and savings became uncomfortable about the sponsorship of a culture of greed and pie-in-the-sky notions that, in future, N&P as it became, might sell anything at all - "even hamburgers!" one over-excited director declared.

The vanishing mutual: N&P's Bradford city centre branch, long since empty..
As it was, a couple of years after I left, the first big housing recession kicked in and their plans came to nothing. Instead of sailing their way into corporate supremacy, the financial wizards had to settle for being swallowed up first by Abby National PLC before in turn vanishing into the giant Santander PLC. The headquarters, a large building in Bradford city centre that appeared to have been architecturally inspired by lego windows, was symbolically dynamited as hordes of locals looked on, uncertain how to react other than run up the hill when the dust clouds billowed out much further than anticipated.

The intervening decade and a half up to 2008 saw the bankers egotistical bubble inflate and stretch horrendously. Old shibboleths that limited lending went by the wayside. Anything could be borrowed and repaid. Buy-to-let mortgages, where people could borrow to purchase property to rent out, were introduced after decades of being illegal - causing massive inflation in the first-time buyers sector and pricing many younger people out of the housing market for good. Mortgage limits, once pegged at 80% of house value, rose to 120% and beyond as the poison of overlending reached everywhere.

The banks have failed and failed comprehensively. Nearly four years on from the crash of 2008, most remain in hoc to the Government, which in turn is punishing ordinary people through higher taxes and reduced services, grinding the whole economy to a halt. The housing market is flatter than flat, with unscrupulous private landlords the sole beneficiaries. In spite of repeated demands from the government, small businesses especially complain that it is nigh impossible to get loans for vital investment in their businesses. Stagnation results, with unemployment and low wages driving the consequent cycle ever down.

In all, with offers of a few hundred pounds in shares to members, ten building societies took the crooked path from mutuals to plcs. Read the list now, and they have virtually all vanished or, in the case of Bradford & Bingley and the pisspoor Northern Rock, were nationalised after collapsing only for their profitable sections to be sold off to the private sector once more.

The Green New Deal, proposed just before the last election by a range of green economists and politicians, including GPEW leader Caroline Lucas, argued for the hastily nationalised banks to be broken up and re-mutualised rather than sold off. In this way, the link with the need to make profits would be broken and they could focus again on building communities and local businesses and co-operatives.

But the Government is not listening. The profitable bits of RBS are being sold off to Santander, all of which will go firmly back into the private banking sector, in spite of all the signs that it has not learnt its lessons from the avaricious mess it has got itself and all the rest of us into. 

But of course, the building societies don't make donations to the Conservative Party - perhaps the one investment that does still count these days.  



  1. Don't know many socialists who like BUPA - a mutual.

  2. I suspect that is more to do with BUPAs activities in undermining the NHS as opposed to its form of ownership.

  3. LOL the building totally looks like it was inspired by Lego! Good call.