Lord Mervyn King – the pawnbroker for all seasons

In early 2016, the former Bank of England governor Mervyn King released his new book, ‘The End of Alchemy’. He states in the book that the most recent financial meltdown showed that emergency facilities often ‘failed to penalise banks that took advantage of such support’, offering ‘inadequate haircuts (on collateral) and low or zero penalty rates’ as panic gripped markets.

Lender of last resort

Lord King says the financial crisis of 2008, which saw centrals bank acting as ‘lender of last resort’ when financial institutions had run out of options is a concept ‘in need of updating. It is time to replace the lender of last resort by the pawnbroker for all seasons.’ He goes on to explain that during the 2008 crisis, banks would come to the central bank looking for a loan when they were already in deep trouble. Despite this they would offer very complex (sub-prime loans) or nearly worthless collateral for the loan.

Pawnbroker for all season

Lord King explains, ‘A pawnbroker is someone who is prepared to lend to almost anyone who pledges collateral sufficient to cover the value of a loan – someone who is desperate for cash today might borrow $25 against a gold watch. In 2008, banks had very few ‘gold watches’ and plenty of broken ones, and central banks were forced to lend against inadequate collateral in order to save the system.’ This shows us the insanity of the system at the time, with banks able to get loans despite having almost no collateral.

The solution

The solution proposed is a tough one yet seems fair to the layman; banks would be forced to guarantee any money deposited in savings less than 12 months old, or borrow from the central bank with set collateral.

If you need a fast cash loan and are looking to avoid jumping through the many hoops required by the bank industry, get in touch with London pawnbroker Suttons and Robertsons. We can help you with the right solution.