I had two conversations yesterday that made me fear that unless we, corporately, change our outlook the country won’t achieve the change it needs.
The first conversation was on the train with a fellow passenger who works for a major Housing Association. They were seeking funding to put solar electricity (photovoltaic – PV) panels on the roofs of some of their houses, much as Derby Homes is doing for council houses in Derby. This housing association has been turned down by their bank which was concerned that this would reduce the value of the housing stock.
The second was with someone for whose views I normally have a lot of respect. He was adament that banks should not be investing in projects that carried a risk of failure. My point, that almost all projects carry some risk, and risk needs to be accepted but managed, was supported vociferously by someone else there – who has a background in science research.
The 2008 banking collapse is still being blamed for the start of the current recession. And the underwriting of ‘sub-prime’ loans was pin-pointed as the problem. This investment clearly turned out to be unwise, but was there a difference between these loans and one for a local business to manufacture a new product, or a mortgage for someone to buy a house?
The difference is really the split between ‘investment banking’ and ‘high street banking’. The former, as I see it, includes not just the sharing of loan risk as part of the underwriting market, but also buying and selling stocks and shares, and other ‘paper transactions’ like the commodities and futures markets and currency exchange rates. This has become little different to high class gambling as it takes place at far higher volumes than is needed for trade. It is certainly risky, and there is no real world net benefit as a result.
Meanwhile a mortgage enables someone to put a roof over their head and the business loan means a new product is launched on the market. They too are not without risk, but both mean that something different happens in the real world.
The real danger is that people treat both sorts of investment with the added caution developed as a result of the recession. But in my view they shouldn’t be.
The world would be none the worse without investment banking, but if people can’t get funds to turn new green business ideas into reality, or obtain property for homes or businesses, our economy won’t move forward to achieve the sustainable prosperity we need.
The Liberal Democrats’ vision of a Green Investment Bank needs the capacity to assess the risks and benefits of proposals and the courage to allow innovative solutions to be developed. The media and other commentators need to have the wisdom not to criticise if some of these investments founder or loans will be too cautious and we will stand no hope of leading the way to a more sustainable future.