In this episode, we explore the literal meaning of the term ‘mortgage’, and what it implies in our lives
So there’s this great place that you’ve seen, just down the street, that you can see is on sale:
Looks like it’d be a great deal, right?
But to buy it, you’re going need to get a home-loan, a mortgage.
If so, it may be wise to remember that a mortgage is literally a death-pledge…
No, that’s not an exaggeration, it’s literally true. In translation, ‘mort’ is ‘death’; ‘gage’ is ‘pledge’. Hence, ‘a pledge unto death’. Literally.
So when your bank offers you a mortgage, that’s what it’s actually asking you to do.
Yikes…
Sounds like a really big risk, right?
So what risk will the bank take, then, for their side of the mortgage?
Well, none, basically. What little risk there is on their side is actually passed on to you.
Which is where things get… interesting…
It’s also where this gets seriously scary, too - not least because it shows us just how utterly insane our current so-called ‘economics’ actually is.
So let’s use the mortgage-industry as a worked-example. What we find out when we look more closely at the mortgage industry - and all the other parts of the finance-system too - is that the whole thing is actually a gigantic global-scale scam. To be more precise, it’s kind of a cross between a Ponzi scheme and naked short-selling and the way that a casino rigs the game so that the house always wins. There’s also a crucial sleight-of-hand shuffle that can be hard to spot unless you take care to look for it. Oh, and often also a whole bunch of other things too: go see the film ‘The Big Short’ for more detail on that. Eye-opening indeed. Ouch…
And yeah, that’s going to be true in basically every case, whether intentional or not. It’s not a choice as such, it’s inherent in the way that the money-system works. Everyone does it. So it’s no-one’s fault. Honest. It just happens, see?
Hmm…
Anyway, let’s go through the whole thing step-by-step. (Okay, I’ll probably get a few bits woefully wrong, but this is still basically how it goes.)
We’ve already covered the first few steps: like I said above, you’ve found this place that you want, you don’t have enough money to buy it outright, so you go to a bank or wherever to look for a loan. The next part is about what happens when you get to the bank itself.
A memory strikes as you walk in through the door. Back when you were a kid, a bank was big and serious, brass fittings, high ceilings, marble-floors, hushed like a temple almost, a temple to money. It’s not like that now, though: all that old stuff is gone, along with most of the staff. It’s been ‘refurbished’, they said. Improved. Updated. Modernised. So now it’s the same tired, lost, lifeless look as every other store on the high street: flimsy plasterboard, plastic laminate, worn-out carpet, everything tawdry and cheap.
Nothing cheap about what they’re trying to sell you, though. As you read the eye-watering amounts they’re charging for loans these days, you wince. Ouch.
You wait, and wait, and wait a bit longer. Eventually someone deigns to come over, takes you to a desk that’s sort-of off to one side but otherwise wide out in the open, no privacy at all. Uncomfortable; disconcerting. She hands you a form, walks you through the details that they need: name, address, family income and all that. Also what deposit or other collateral you can offer: that one seems oddly important to them. She hands you a cheap branded pen to sign the form, “you can keep the pen”, she says, with a happy laugh. She puts your copy of the signed form into a large, heavy envelope. “Congratulations”, she says, with a smile, as she hands you the envelope.
Yes. Congratulations. Well done. You have your mortgage. Your death-pledge.
What happens next is why it’s called a ‘death-pledge’…
The bank gave you the money, as per their side of the mortgage-contract. You provided your collateral, your deposit; the bank provided the rest; the lawyer dealt with all of the paperwork; the seller’s happy now; it’s all done. Now all you need to do is keep paying the mortgage-premium for the next twenty years. Simple, right?
But, uh, wait a minute - where did the bank get their money from, to pay off their part of the purchase? Turns out that you’re sort-of not really supposed to ask that question… - but let’s ask it anyway, and see what answers we get.
Okay, so, did they have a great big pile of cash in the vault, maybe?
Answer: no. In fact they probably don’t even have a vault any more.
Right, um, that sounds a bit odd. So, uh, did they sort-of borrow it from another bank or something?
Answer: no. (Okay, true, they might, but it’s rare for them to have to do that.)
Want to know the real answer? They got it from nowhere. Or, to be more precise, they invented it, from nothing. They wished it into existence, because they wanted to.
No, that’s not a joke. And yes, insanely, that’s entirely real. And entirely legal, too.
Huh?
Yeah - it’s true. That’s exactly how it works. I forget the exact number now, but banks are legally allowed to lend something like ten times more than they actually own.
Wait, wait, hang on, surely must have some money in the vault to do this, right? I mean, if they’ve got nothing in the vault, then ten times zero is still zero, isn’t it?
Nope: it doesn’t even work that way either. (This where that sleight-of-hand shuffle comes in, by the way.) They don’t need any real money at all. All they need is some collateral, a promise of money. They can then legally do the ten-times-lending thing just on that alone.
And it doesn’t even need to be their collateral, either. (Remember that bit about ‘naked short-selling’? Well, this is where that comes into this story too…) As long as they can get their hands on someone else’s collateral, it’s all perfectly fine. And if that collateral is sort-of under their control for the moment, then they don’t even have to ask that someone-else for permission. In fact there’s no way that the someone-else can know what’s going on here unless the bank deigns to tell them that. Which the bank probably won’t, of course.
Have you worked out yet where that collateral comes from, and who that ‘someone-else’ is? Yeah: it’s you. It’s your mortgage-deposit that they’re using for the collateral that underpins this whole scheme. Without telling you, of course.
But wait, you might ask: what happens if you want your money back? Like when you sell the house, for example? Well, it does still all work out fine - for the bank, anyway. As long as someone at the bank has had enough sense to keep at least some of that other-people’s-money in reserve, they can still get away with it, without anyone else ever realising what’s actually going on. But if too many people ask at once, well, there’s no actual money there, is there? - it’s all out on loans that technically they can’t call back, because it wasn’t their money in the first place. That’s when you get what’s called ‘a run on the bank’; and that’s when you discover that this really is a Ponzi scheme, because the only ones who walk away with what little money is left are the ones who run the bank.
And remember, all of this is entirely within the law. They might even have told you that they had the right to do this, somewhere deep within all that impenetrable legalese in that small thick book that was in the heavy envelope that held your copy of the mortgage-contract. That book that, yes, was there, but that they, uh, somehow never mentioned to you, that you never noticed, and that you never read. Oops…
What about your side of the mortgage-contract? Well, the first thing you’ll notice is that, courtesy of the joys of compound-interest, you’ll typically end up paying about three times as much as you borrowed. Ever wondered where your life went? Well, to quote Murray Newlands, “We don't buy things with money, we buy them with hours from our lives”. So yeah, definitely ‘mortgage as death-pledge’ there. Ouch…
And to make it even more un-fun, there’s the constant danger of default. Right until the day you pay off the last of the mortgage, then if you miss maybe even one payment, for any reason at all - you’ve been ill, you’re between jobs, whatever - then the bank can call foreclosure on you. In short, they can legally take possession of your house, kick you out, sell it off without your permission, and pocket all of the profit. And there’s nothing you can do to stop them doing it, because it’s all in that mortgage-contract that you didn’t bother to read.
Which leaves most mortgagees stranded in fear, for the entire duration of the mortgage - which in practice may well be almost the entirety of their life. Most likely trapped in a job they hate, just to make sure they’ll always have enough money for the mortgage. Terrified of any kind of change, terrified of illness too, in case the flow of money might stop for even a day. And stress, stress, relentless stress, day after day, year after year. No wonder that a mortgage is rightly described as a death-pledge…
Mortgages are hell for everyone. You pay for it three times over, you’re left stressed to hell every day, you carry all of the risk, and you can lose everything in an instant.
Hell for everyone except the bank, of course. The bank rakes in vast profits from nothing at all, and carries no actual risk that it can’t offload onto someone else. Not exactly a stressful life, that.
There used to be a bleak old joke about this: “If you want to steal a lot of money, you don’t need to rob a bank: you just need to own one.”
It’s not a joke. Not any more.
It’s not just the banks, of course: every other part of the money-system works in just the same way. The whole structure of that ‘economic system’ has exactly one ultimate purpose: to help an ever-smaller number of people steal every scrap of money from everyone else’s lives. And usually steal those people’s lives whilst they’re at it, too.
Not A Good Idea…
Yet are there any alternatives to that whole misery-inducing mess? Any at all?
Actually, yes, there is: get rid of the money-system.
Get rid of it. All of it.
As we’ve seen above, all it ever does is make everyone’s life stressful, miserable and worse. It’s insanely inefficient, ineffective and wasteful. It has a very real and ever-increasing risk of killing us all. We now know that we don’t actually need it anyway. And we also already know quite a lot about how to get rid of it, too.
So let’s get rid of it.
Simple as that, really.
Next?
What would we replace it with, though?
Short-answer: an economics based not on possession, money and self-delusion, but on responsibility - on mutual, interlocking responsibilities that apply to everyone.
On the surface, a responsibility-based economics looks much the same as we already have. But in practice, it’s much, much simpler.
To illustrate that point, let’s do the same scenario that we started with above, but show what it looks like under a responsibility-based model:
So there’s this great place that you’ve seen, just down the street, that you can see is available.
(The sign-board would show ‘Available’ rather than ‘For sale’, but otherwise it’s just the same.)
Looks like it’d be a great place for what you need, right? And it’s listed as available, too.
But to take it over, you’ll first need to register it.
You go to the agent listed on the sign-board, and confirm with them that it is what you want, and that you’ll be able to take on the responsibility for it - for keeping it maintained and so on.
Once those details are sorted, they register it in your name, so that everyone else knows that you’re now the one who’s responsible for it.
(No money involved, you’ll note, because there’s no need for it in a responsibility-based economy. No need for any death-pledge to anyone else, either. Not ever.)
You move in.
Other than organising a bit of maintenance and so on over the years, that’s it, until you choose to move out.
Simple as that, really.
Next?
Who builds the house that is marked Available? Who feeds them and their dependents? What about those who assume responsibility for an asset and then let it fall under repair?