Vital measures needed to stem credit system carnage

AMID the ruined lives, ruined fortunes and carnage of otherwise good businesses that this financial crisis has left, two things (among several others) must change.

First, the concept that the debtor only should pay for losses in a failed enterprise must be changed to a policy where creditor financial institutions must share equally in those losses.

In the domestic mortgage sector the policy must change to one of non-recourse mortgages only where the mortgage is secured on the asset for which the borrowing is made. While this would undoubtedly dampen lending this could be combated by imposing fines on financial institutions which fail to lend to enterprises/mortgagers who are adjudged to be a reasonable credit risk by an independent regulatory body.

Second, the giving of personal guarantees for borrowing by commercial enterprises must be made illegal. Such personal guarantees make a complete nonsense of the basic tenet of commercial enterprise, that of the limited liability company where business assets are put at risk but personal assets are protected.

Each of the above would lead to better scrutiny and risk assessment of both commercial and domestic borrowing which would be no bad thing given the near absence of such scrutiny by dysfunctional banks in the bubble past. But principally, it would avoid the carnage of business, personal finances and lives which the present credit system has wreaked.

Kevin T Finn

Kingston Close

Mitchelstown

Co Cork