A little word from your financial adviser

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FLIPPING through a tabloid, my eye is caught by the Black Horse design, a good logo, but it doesn't make me think of security or prosperity, or even money - I think: bucking horse, man falling off, ouch] The headline of the article is: 'Lloyds charge pounds 25 on overdraft of 25p'. Helena Peck, a machine operator from Somerset, wrote a cheque for pounds 41.62 when she only had pounds 41.37 in her account. Lloyds charged her pounds 25, its regular amount for bouncing a cheque and writing a letter to tell you about it. Helena said: 'I cannot believe they can be so callous and calculating . . . I'm just sickened.'

This year, the banking ombudsman, Laurence Shurman, has received around 10,000 customer complaints, 60 per cent more than last year. The complaints, typically, were about charges and interest - for having, as Helena Peck put it, 'such a Scrooge attitude'. Helena, though, hardly has grounds to complain - after all, when she opened her account, she agreed to the bank's terms.

In a recession, the world is full of

statement-scanners, chequebook stub-writers and complainers. Also, banks get meaner, because many of their clients have gone bankrupt. In a recession, banks find all sorts of ways to suck money out of you. High street bank tellers now try to hawk the bank's financial services after you've deposited a cheque; I even had a Lloyds representative come to my house to pick through my finances with me. In fact, banks have been so pushy this year that two new organisations - the Bank Action Group and the Association of Bank Customers - have sprung up to slap them down.

But people have always ignored the central absurdity of banking. Banks take your money, pledging that they will give it back whenever you want it. Then they lend it to someone else. So they lie to you. They depend on your confidence in their pledge, rather than their actual ability to meet it. They pretend to have money they haven't got.

The way it works is this: you earn more interest from lending large amounts of money than you have to pay for borrowing small amounts. Imagine how you would do it: if you get, say, a thousand people to invest pounds 100 with you, by paying them each seven per cent interest, you'll make a profit as long as you can find someone so desperate for pounds 80,000 that they're prepared to pay a rate of 10 per cent.

What kind of person would that be? Someone who can make an even bigger profit elsewhere. A speculator? A criminal? A good rule of thumb about any form of banking is that it brings out the worst in people: historically, banks have encouraged centuries of mass destruction - wars, empires, fast food chains. One of the first examples of this is the Bank of England, which was founded in 1694 because the government needed pounds 1.2m to fight a war against the French; William Paterson, a canny Scot, agreed to raise the money, but made them pay eight per cent interest.

Banks exist because rich people are incredibly greedy and power-hungry; they want to get richer, so they're prepared to pay through the nose to have a really big wedge. At the same time, poorer people need somewhere to hide their money, because they tend to be surrounded by thieves. This is the second necessary factor in the evolution of the bank: fear of criminals. Banks are institutions based entirely on greed and fear.

Who first thought up the concept of the deposit bank? Nobody knows, but he was probably a 17th-century English goldsmith. Goldsmiths ran a sideline in renting out their vaults to people who wanted to stash their valuables; they gave receipts for the goods. And then, slowly at first, the receipts began to have their own transferable value, becoming the first rudimentary banknotes.

So when did the penny drop? Who first thought of it? You can imagine it, the Eureka of amazement that must have gone through his mind: I've got all this gold] And people don't need it now they're using the receipts. It's not mine, but . . . it might as well be] And was there a transitional period, with goldsmiths' heavies going round threatening merchants, getting them to accept the notes, to instil confidence in the market?

You also wonder what it was like in 1797, when the Bank of England's gold reserves became unstable: the receipts weren't worth the bank's pledge any more. The bank's solution was to issue small-denomination notes for pounds 1 and pounds 2. But nobody gave much thought to the design, so they looked like cheques: a couple of ruled lines for the hand-scrawled information, and a stamp of the bank's crest. In other words, a forger's paradise; they just needed to etch a rough logo into a metal plate. So the government slapped the death penalty on forgers, who continued to be executed for several decades until someone invented the watermark, and therefore an almost inimitable banknote, in the 19th century.

Banks try to create conditions in which people will want or, better, need to borrow money, and they don't worry about the mess it causes afterwards. Recently, we've seen banks screwing the poor as well as the rich; credit cards, which evolved in America in the 1940s, are aimed at people who want things but

can't afford them - 20th-century people, consumer-society people. The first cards were issued by the Flatbush National Bank in a poor part of New York; now, in this country, the interest rate you pay on Access or Visa is around 25 per cent, which must give Laurence Shurman a lot of letter-opening time.

It's getting worse: the poor are being squeezed more now that there aren't so many rich people around. Banks got too greedy - they encouraged so much borrowing that people went bust.

Now the banks are clutching at straws. A Lloyds Bank brochure comes through my door, telling me that the Black Horse 'is advertising's second most famous animal . . . better known than the Dulux Dog or the PG Tips chimps, but is beaten to the top slot by the Andrex puppy'. They must be desperate. -

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