Why the financial crisis spells doom for the environmental

The front pages in the UK this week are a-spread with the news of record profits at Barclays Bank, with accompanying bonuses for top bankers. This echoes last week’s story at Goldman Sachs. Given the recent bailouts and government support, the Economist is right to note that ‘such largesse looks cheeky at best’!

Although the two crises have little in common, this obstinate reminder of how little has changed in the financial sector prompts me to deeper pessimism in the environmental crisis.

Why? We’re perhaps only a year into, and most certainly nowhere near out of, the greatest economic crisis in living memory. Many people are still in the thick of it, as it witnessed, for example, by record unemployment levels on both sides of the Atlantic. Yet it seems that we are incapable of learning, or changing in the face of significant crisis.

The potted history goes something like this – the potential to earn ever-greater salaries prompts a spiralling risk appetite amongst poorly regulated bankers. Remuneration is paired to their gains, with little downside or effective regulation. This is compounded by an arrogant (and subsequently proven) assumption that (most) banks can’t be allowed to fail. Given the almost unlimited up and limited down, everyone jumps on the bandwagon to make as much money as possible, regardless of the underlying wisdom. After all, it would contradict the sector’s basic principles for bankers to have acted any other way.

Then, despite warnings from many of the wisest, assets underpinning the façade devalue causing the foundations to erode. In order to prevent massive economic subsidence, governments are forced to step in to shore up our economies and promise to regulate to prevent this ever happening again. Although some of the oldest and strongest houses come tumbling down, it seems we’ve done enough to avert the worst of the storm – and we begin the slow process of rebuilding confidence and trust.

Yet a mere few months have passed since squzillions of taxpayers dollars/pounds have been pumped into the financial sector to avert disaster, banks are totting up record profits and paying record salaries.  And so, despite government promises it would not, the process begins again.

Now, I’m normally not one to be pessimistic. Quite the opposite, as I hope this previous article of mine indicates. I’m also not one to be overly jealous when bankers are earning 7-figure sums if they are deserved, or wallow in schadenfreude when they come a tumbling down. But I find it hugely alarming to see history repeating itself so swiftly and so unashamedly, especially when so many of us have suffered so directly and so recently.

Which makes me all the more pessimistic about our ability to deal with climate change or other aspects of the environmental crisis. After all, how can we ever expect to deal with a crisis that will have a much more indirect, slower and subtler impact?

2 thoughts on “Why the financial crisis spells doom for the environmental

  1. Hi there

    Hope you find the following of interest and could not agree more, we allowed the Bankers away with Blue Murder and sad, sad, sad what is happening now.

    How it Was

    There was a time just over 20 years ago in the United Kingdom when the local Bank Manager and Building Society Manager had what was then known as Discretionary Power (DP).

    Not only could he lend money from his Branch in his own right but his recommendation was needed for all facilities above his DP whenever a customer required it.

    The Manager knew his customers, his community and what was going on in the environs of his Branch and each town had a coterie of such Managers who all shared common knowledge and many times common interests.

    This fount of knowledge was gradually computerised at all the Banking Institutions during the 90’s and control was centralised and local DP’s removed.

    Slowly but surely credit score systems and computer driven systems took over from the local presence and call centres went to the other ends of the earth and less and less could the customer talk to a member of staff locally about facilities required on funding.

    Sales of Insurance products, credit cards etc. were now being thrust at a customer database that could be controlled by some wet behind the ears MBA or computer accountant.

    In fact it all got so bad that you had 4 men at the top of 2 major Bank Groups who do not have a Banking Qualification between them.

    Now with the computers you could start to run fancy leverage programmes, derivatives, hedge funds etc. and the fact that the underlying strength of any deal is the customer, the security and the repayment method was buried out of sight.

    All of this was lost sight of in the mad rush for the God of Turnover and the old adage Turnover For Vanity, Profit For Sanity was completely ignored.

    Future Funding

    One of the best things is that we have to reshape and rethink how we do things financially and how decisions on funding are made.

    Cash money has not gone it is sitting quietly in other pockets waiting to be spent, but underlying asset values have decreased dramatically and they are the fundamentals that funds are loaned against.

    The basic principles of PARTS and the 3 C’s were thrown out of the window over the last decade.

    Purpose, Amount, Repayment, Terms and Security of the transaction and the Character, Capacity and Capital of the Borrower, Consumer or Business, were all lost sight of in the rush for short term gain.

    For the future Capital values will rise again and funds will start to flow but this time hopefully with circumspection and inspection of the underlying transactions being first and foremost in the decision making process to release funds for investment and not speculation as Hedge Funds were doing.

    There is a tremendous paper to be written about all that has happened in the past decade and a very interesting future view to be taken.

    There is an old maxim that you should “zig when the herd are zagging” and look for the area where future growth will occur and without a doubt this is in recycling and renewable energies.

    Not only will these areas create jobs and wealth they will help us save the finite resources of the Planet and give future generations a Planet worth living on and investing in.

    Also the use of Bartercard with Trade Pounds creates a whole new opportunity for business to deal with business outside the currently sullied Banking World.

    Best wishes to all in 2009 and beyond and hope springs eternal and there are great future opportunities too.

    Alan Bowman, ACIB

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