I recently read a thought-provoking account of a court case held in the States in the 1970's. I will be returning to the topic of fractional banking later but this case was around a home repossession by a major bank.
The guy in the dock that day had done his homework. He took the judge through the various steps involved in his getting his mortgage, right up to signing on the dotted line. I was vaguely aware that such a document was covered under contract law but the guy filled in the gaps for me. Apparently, for a contract to be valid, something of value must be exchanged for something else of value. The relative values need not be exactly the same but you get the gist because any kind of value is nominal and subjective.
So our man scribbled his name and off he went. We are left to presume that he had an, ahem, change of circumstances and his repayments stopped. The bank was quick to jump on him but he wasn't prepared to hand them back the keys and walk away, hence the court case. So our lad gets Council for Banks to agree that definition of contract law and to further agree that indeed, it covered all mortgages too. Then it got interesting.
In terms of exchange of values he reasonably pointed out that there were three elements in the equation. There was the house and land he was buying, there was the amount of the loan granted and then there was his labour over years to pay for it. In theory the bank agreed to give him the money in return for his repaying it with interest. Isn't that all our understanding of the event we went through as well. But it isn't and it wasn't.
The bank did not have any actual money to give him so they conjured it up out of thin air and registered its existence as a line item on a computer. This phantom money was electronically transferred to his account and magically appeared as a positive there until he transferred it electronically to the account of the seller. Are you still with me? The deeds of the property were exchanged between the seller's bank and the new owner's bank and the schedule of real money repayments began. The deeds of ownership never left the banking system.
I can't remember how many years the guy was paying but when the time arrived that he couldn't, the trouble began. Then he argued brilliantly that firstly, the money he was supposed to have received was not existing money. It was in fact debt created at the tap of a keyboard and the bank had simply nominally transferred a portion of that debt to the seller's account. What the plaintiff got was a debt without any money attached to it. Even worse than that, the bank still owned the property and as proof of that he pointed out to the judge that they, the bank, were in court that day as the legal owners, simply trying to put him out of it. He then added that no account was taken of the hard years he'd put in to give them real money for nothing, and at big interest as well. In case you don't know, the banking system calculates your full interest over the life of the mortgage and applies it all from the start, divided evenly over the months it takes until the interest is all paid first. You don't get near the capital sum until after mid-way through your mortgage normally. His repayments would not be refundable so in summary he showed how he was screwed three ways. Noticing that he had convinced the judge on all three counts, the Council for the Bank asked for a recess while they convened with their client.
Guess what? They didn't come back. Instead they sent a note to the court to the effect that they were dropping the case and the guy kept the house. No more repayments were made on it so you can only suspect that the bank wrote it off as a bad debt. The article I read about it in was from some remote outpost of the Union but it never made the nationals. I wonder why that is? A debt write-off like that could cause an avalanche if it ever came out. I can only suspect that during the recess, our man found himself having a discreet conversation with representatives of the other side. In return for keeping his trap shut for life, he got the house. Doubtless dark threats were made if he broke his promise and that's why it fizzled away into the darkness of collective amnesia.
As I said, thought-provoking isn't it?