Pawnbrokers: A message from the past

The History of Pawnbroking Comments Off on Pawnbrokers: A message from the past

Early in 2016, Mervyn King, the former Bank of England governor released a new book. In his new book, he says the most recent financial meltdown showed that these emergency facilities often “failed to penalize banks that took advantage of such support”, offering “inadequate haircuts [on collateral] and low or zero penalty rates” as panic gripped markets.

Lord King says the financial crisis of 2008 shows the concept of a central bank acting as “lender of last resort” when financial institutions have run out of options is “in need of updating”.

“It is time to replace the lender of last resort by the pawnbroker for all seasons,” he writes.

“A pawnbroker is someone who is prepared to lend to almost anyone who pledges collateral sufficient to cover the value of a loan – someone who is desperate for cash today might borrow $25 against a gold watch.”

“In 2008, banks had very few ‘gold watches’ and plenty of broken ones, and central banks were forced to lend against inadequate collateral in order to save the system.

Only by ensuring that “liquidity insurance” is “paid for upfront” will the “incentive for bank runs” be eliminated, he says. “Private financial intermediaries should bear the cost of alchemy,” he says.

This is not the first time that the pawnbroking industry has attracted such views and it is not the first time that these views on the pawnbroker have been expressed by someone of high office.

The Lord Chancellor Bacon (Francis Bacon, 1st Viscount St Alban 22 January 1561 – 9 April 1626) wrote on the subject of short term lending and its need in a functioning financial market place.

“The commodities of Usury are; first, that howsoever usury in some respect hindereth merchandizing, yett in some other it advanceth it; for it is certain that the greatest part of the trade is driven by young merchants upon borrowing at interest; so as if the usurer either called in or kept back  his money back, there will ensue  presently a great stand of trade.

The second is, that were it not for this easy borrowing upon interest, men’s necessities would draw upon them a most sudden undoing, in that they would be forced to sell their means( be it land or goods) far underfoot, and so, whereas usury does but knaw upon them, bad markets would swallow them up quite. As for Mortgaging or Pawning, it will little mend the matter; for either men will not take pains without use, or if they do, they will look precisely for the forfeiture.

The third and last is, that it is a vanity to conceive that there would be ordinary borrowing without profit; and it is impossible to conceive the number of inconveniences that will ensue if borrowing be cramped; therefore to speak of the abolishing of usury is idle; all states have had it in one kind of rate  or other; so that that opinion must be sent to Utopia”

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On August 26, 2016

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Hopkins & Jones Ltd is a trade member of The NPA (The National Pawnbrokers Association). Hopkins and Jones Limited, Company registration Number 433606. Registered Office, 7 William IV Street, London, WC2N 4DW. Hopkins and Jones Limited are authorised and regulated by the Financial Conduct Authority licence No 6520002 for the provision of pawnbroking loans.
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