Masterclass: Credit

What is it? 'Cash or credit?' asks shopkeeper Bernard Lee in the dour 1965 film of John le Carre's thriller The Spy Who Came In From The Cold.

Last Updated: 09 Oct 2013

When Richard Burton, playing the spy, is denied credit, things turn nasty. That's the problem with credit: we get used to it being there. Those of us who aren't sitting on piles of cash need it. So do businesses. Few companies keep much spare cash. Credit fuels investment and oils the wheels of capitalism. But it depends on having lenders who are ready to lend. When a credit crunch bites, things get difficult for everybody.

Where did it come from? Credit has to do with belief and trust - those are the word's Latin roots. And moneylenders, of course, go back to Biblical times. The formal instruments of credit emerged when barter was no longer a sophisticated enough means of paying for goods and services. But that's the financial services industry for you: constantly trying to find news ways of making money. Lending cash has always been, in the best sense of the phrase, a confidence trick. If all depositors chose to withdraw their savings at the same time, we'd get a nasty shock. Not all the money is 'there' - it has been lent elsewhere.

Where is it going? No-one wants another Northern Rock scenario, with worried savers queuing outside banks. We need to restore credit in credit. That's what the financial world is slowly doing, but it's a long haul. Credit conditions are likely to be grim, for individuals, homebuyers and businesses, for months to come. Gordon Brown's father was a minister in the Church of Scotland. North of the border, the Lord's Prayer goes like this: '... and forgive us our debts, as we forgive our debtors.' The PM is probably uttering a similar prayer right now.

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O% now, but 150% over five years.

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