Would Newcastle have to pay back £4bn if its Wonga sponsorship was a loan?

Interest is tricky.

When Wonga announced their intention to sponsor Newcastle United FC, it generated no small amount of opprobrium. Despite the company's best attempts to generate a positive image for itself, it is still largely seen as a payday loan company, preying on the poor for a quick buck. So it was no surprise that smart a demonstration of that fact very quickly made the rounds:

Anything with over 2,000 retweets is going to get fact-checked a lot, and debates soon broke out over whether the number was accurate. Is it?

Wonga's "representative APR" is 4214 per cent. When you take out a loan with it, it decides at the beginning of the period what your interest is, and charges it to you on the total amount of capital borrowed over that period. In other words, it doesn't compound the interest - which makes sense, because it would be hard to compound anything over a loan as short month. As a result, if you were charged an annual interest rate of 4214 per cent, then at the end of a four year period you would have to pay back: 

£24,000,000 + £24,000,000 x 42.14 x 4 = £4,069,440,000.00                                 

(That's the capital, plus four years interest.) A shade over £4bn. So James Dixon is correct.

Except that the 4214 per cent APR is already compounded. As Wonga explains, industry regulations require it to present interest at an annual rate even if it doesn't make annual loans. To do this, it is required to take the amount of interest you would pay on its longest loan, a month-long one, and act as though you rolled it over, taking out larger and larger loans to pay off the interest as you go along. If we compounded Newcastle's loan similarly, then after four years it would owe:

£24,000,000 x (1+42.14)^4 = £83,125,028,034,051.84                                 

That is £83 quadrillion. It's over one hundred times world GDP, and in the ballpark for the total value of everything on earth.

But Wonga would maintain that using that interest rate is unfair. Although they are required to present their representative APR in that manner, they have never, and would never, charge it to a customer. The annual rate of interest which they actually charge is "just" 360 per cent, and the rest is made up of the compounding which they are forced to assume. If Newcastle's loan was taken out at that rate, it would have to pay back:

£24,000,000 + £24,000,000 × 3.6 x 4 = £369,600,000.00                                 

£370m is still quite a lot to pay for £24m, but it's nowhere near billions. And in actual fact, Newcastle wouldn't even pay that much. It's not a person, it's a business, and Wonga have - controversially - launched a division exclusively for lending to businesses. The largest and longest loan it offers is £15,000 for a year, which costs £19,350 to pay back, implying an APR of 29 per cent. If Newcastle borrowed £24m for four years at that rate, then if the interest compounded, it would equal:

£24,000,000 × (1+0.29)^4 = £66,461,491.44                                 

And if it was charged in one lump sum, it would equal:

£24,000,000 + £24,000,000 × 0.29 x 4 = £51,840,000.00                                 

The root of the problem is that Wonga isn't actually in the business of making multi-year, multi-million-pound loans. The assumptions we make in trying to squeeze their business model into a shape that lets us make that comparison are important, because they're the difference between paying back £52m and £83qdrn.

Front page of Wonga.com

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Getty
Show Hide image

As Donald Trump once asked, how do you impeach a President?

Starting the process is much easier than you might think. 

Yes, on Friday, Donald Trump will be inaugurated as the 45th President of the United States. And no, you can’t skip the next four years.

But look on the bright side. Those four years might never happen. On the one hand, he could tweet the nuclear codes before the day is out. On the other, his party might reach for their own nuclear button – impeachment. 

So, how exactly can you impeach a President? Here is our rough guide.

OK, what does impeachment actually mean?

Impeachment is the power to remove an elected official for misconduct. Here’s the relevant clause of the US Constitution:

“The President, Vice President and all Civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.”

Impeachment is actually a legacy of British constitutional history, and dates back as far as 1376, but according to our own parliamentary website, in the UK “this procedure is considered obsolete”. 

It’s up to the US Congress to decide whether to impeach and convict a President. Both houses are controlled by the Republicans, so impeaching Trump would mean turning against one who is – technically at least – one of their own. Since he’s already insulted the neighbouring country, supported discrimination against Muslim immigrants and mocked a disabled reporter, their impeachment threshold seems pretty high. But let’s imagine he surpasses himself. What next?

The impeachment process

Members of the House of Representatives – the lower chamber of the Congress – can start the impeachment process. They in turn may be encouraged to do so by voters. For example, there is a whole Wikipedia page dedicated to people who tried to impeach Barack Obama. One Impeach Obama supporter simply gave his reason as stopping the President from “pushing his agenda”. Another wanted to do so on the grounds of gross incompetence...

But for an impeachment attempt to actually work, the impeacher needs to get the support of the house. If a majority agree with the idea of impeaching the elected official, they nominate members to act as prosecutors during the subsequent trial. This takes place in the Senate, the upper house of Congress. In most impeachments, the Senate acts as judge and jury, but when a President is impeached, the chief justice of the United States presides.     

Two-thirds of the Senate must vote for impeachment in order to convict. 

What are the chances of impeaching Donald Trump?

So if Trump does something that even he can’t tweet away, and enough angry voters email their representatives, Congress can begin the process of impeachment. But will that be enough to get him out?

It’s often assumed that Richard Nixon was kicked out because he was impeached for the cover up known as the Watergate Scandal. In fact, we’ll never know, because he resigned before the House could vote on the process.

Two decades later, the House got further with Bill Clinton. When it emerged Clinton had an affair with Monica Lewinsky, an intern, he initially denied it. But after nearly 14 hours of debate, the Republican-controlled House of Representatives decided to impeach him on grounds including perjury and obstruction of justice.

In the Senate trial, Clinton’s defenders argued that his actions did not threaten the liberty of the people. The majority of Senators voted to acquit him. 

The only other Presidential impeachment took place in 1868, when President Andrew Johnson, removed a rabble-rouser from his Cabinet. The guilty vote fell short of the two-thirds majority, and he was acquitted.

So, what’s the chances of impeaching Trump? I’ll leave you with some numbers…

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.