RTE programme Primetime carried a great introduction to a scandal in the UK and Ireland that mirrors the Savings and Loans scandal that gripped the US in the 1980’s. During the 1980’s, Savings and Loans companies (kind of equivalent to building societies in the UK and Ireland) bought complex financial products that they did not understand. Many of these blew up in their faces taking down their institutions, while the large banks such as Solomon Smith Barney and Goldman Sachs made fortunes of trading commissions, advice fees and various revenue opportunities from assembling these financial timebombs. Michael Lewis documented is process in his book Liars Poker.The same thing that happened to big money happened to individual homeowners in the UK and Ireland. People seeking a home loan were sold an interest only loan and a life policy that would pay off the principal and leave them allegedly with a bonus at the end. Much of the projections were over optimistic, the financial institutions got fat off transaction fees, commission, setting up charges and fund management fees. The first years endowment premiums on a 25-year loan went in fees, often the cost of the transactions were masked from the consumer.
Now financial institutions have had to write to consumers telling them how much of a shortfall they will owe at the end of their policy. In many casese it is alleged that the companies willingly missold the financial products to customers with data that ther actuaries knew to be false. This situation has also encouraged a breed of jackals who buy early surrender policies from distressed home owners and fund them through to completion in expectation of a more realistic return. The home owners have already taken a hit upfront on all fees associated with the endowment policy.
For those of you who have got a bit hot under the collar over all the swindling we have gone on about, I would recommend having a look at Akiyoshi Kitaoka’s photographs of Japan. They are absolutely stunning.