In a land far, far away and in a time long, long ago there was a financial liquidity crisis. Now, the Banks, who were the pillars of this land, knew there was a problem. But they didn’t want to scare the All Powerful Boss, Mr Market.
No matter what, they had to retain his confidence.
Now the Banks had given out loans to people in what were called Tracker Mortgages. Theses, while things were good, were the engine of the bubble factory. But, when things went bad, these all burst leaving liquidity stains all over the balance sheets.
Luckily a White Knight, in the shape of (their equivalent of the ECB) Interest Rate Increases, rode into rescue our Pillars of Stability.
The Banks, quick as you like, seized on this opportunity and advised holders of Tracker Mortgages to protect themselves against the Rate Increases by signing what they called Fixed Rate Appendices. These were typically of between 3 and 5 years.
The holders availed of these more secure rates in their thousands. Wasn’t it the best advice and sure, didn’t the original loan offer that they had signed say that the Tracker Rate was “the underlying rate for the full term of the mortgage”?
Anyway, the White Knight of Rate Increases turned out to be a fraud. He was blindsided by a Dark Knight who gave himself the ungainly name The Global Financial Crisis, GFC for short.
The GFC went through the Bank’s Balance Sheets faster than Rating Agencies could downgrade Sovereign States. It was carnage. Interest Rates hit historic lows that would make a Trump approval rating seem good.
But remember those Fixed Rate people, with the underlying Tracker Rate?
What to do about them. The Banks were losing money hand over fist. They couldn’t afford to give people the Rates they’d agreed and the State sure didn’t want to have to put more money into the Banks.
I mean, these tens of thousands of people were on an average Rate of 4.75% and the Rate they were entitled to was about 1.15%; the Banks had a problem. Or did they…
You see, some clever clogs devised a way of removing the underlying rate issue. They came up with the “Suite of Options” letter.
This was a letter that went out to people about 30 days BEFORE their Fixed Rate expired. In the “Suite of Options” was a very basic offering:
Dear Sir or Madam,
You’re fixed rate is due to expire on date x
Please see our current rate options:
1yr Fixed at X%
2yr Fixed at X.X%
3yr yada yada
5yr jazz hands
Standard Variable at a little less than the fixed X.X%’s
Please tick the box you like, sign the bottom of the page and send it back to us in the prepaid envelope.
Mr/Ms Pillar Bank
PS terms and conditions apply and there’s a brochure full of them and small print jargon etc etc. You look great, by the way. Have you lost weight?
So the letter went out and the Tracker Rate never even got included as an option. In fact, the Tracker Rate WAS the Do Nothing Option. If the customer didn’t complete the form their mortgage would automatically revert to the Tracker. This wasn’t in the Suite of Options.
Clever, no? It gets better, in the small print was a condition that allowed the bank to remove the original loan offers Tracker Rate “for the life of the mortgage” condition.
Now we had people, badly advised, voluntarily giving up their Tracker Mortgages, without ever knowing they’d volunteered. Genius, you can’t be up with them Bankers, I tells ya.
I’m not sure what happened next. I’d guess that everybody lived happily ever after.
I did read something about some people losing homes, having heart attacks and committing suicide over something to do with our Banks. But that’s not related to my fictional story. Not even a bit.
Besides, our stuff was just an administrative error? And sure, isn’t a 2 Bed portacabin in Ranelagh going for €600k nowadays. So, we are all sweet.
Tony Groves is a full-time financial consultant and part-time commentator. With over 18 years experience in the financial industry and a keen interest in politics, history and “being ornery”, he has published one book and writes regularly at Trickstersworld