Peter McManners


	Peter McManners

Peter McManners Peter McManners Peter McManners Peter McManners Peter McManners

AdaptThrive-Cover New book released

Adapt and Thrive: The Sustainable Revolution

“Radical green business book, which argues that we need to move beyond the short-term benefits of globalisation to build strong communities living as integral components of a sustainable world.”

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After the Crash... Week 40 (29 September 2008)

Yesterday, after the financial markets in London had closed, the news came through that the US House of Representatives had rejected a plan to inject $700 billion into the financial system. What followed was the largest one-day fall on Wall Street since the crash of 1987.

The original plan put forward by Henry Paulson, the Head of the US Treasury, was in affect a $700 billion hand-out to purchase some of the toxic debt at the heart of the banking system. Over the week that followed much cross party wrangling hammered out a deal. This would have released the money in stages with a number of strings attached including oversight of how the funds were spent. This was clearly a much better plan the one first proposed.

The decision to reject the plan was political. Members of the House of Representatives face a re-election in just a few weeks time. Those who feared losing their seats, voted against. The American voting public have little appetite for a plan that uses tax payer’s money to rescue the ‘fat cats’ on Wall Street.

The rejection of the rescue plan is a worry and has spooked Wall Street and other markets around the world. The world financial system is at risk of collapse. However an agreement to bail out the banks, drafted quickly and agreed in haste would have carried with it huge long-term risk. The fact that world finances were badly skewed has been know for a number of years. It is the denial of the need to act that is behind the crisis. There are a number of lessons that must be learnt before this crisis has served its purpose.

The financial system needs a number of reforms ranging from controlling the access to credit to lancing the destructive power of some types of speculation. There are other less well known problems such as the indirect role of the markets in undermining efforts to improve society and protect the environment. I explain in my book, Adapt and Thrive: The Sustainable Revolution, the way the markets are acting as a brake on building a sustainable world, and the need for reform.

For now, there is a crisis. There needs to be some sort of systematic plan to prevent global meltdown. A deal will be agreed. The danger is that once the cracks have been papered over the markets and market participants will return to business as usual. This will not do. It is better that the crash falls faster and further to ensure we take the route of reform rather than the quick fix.

© Peter McManners 2008

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Welcome the Crash of 2008 Week 39 (22 September 2008)

It took a long time coming, but the financial crash is what the world needed. Over the last few years huge imbalances have been building up in the financial system. It had to unwind somehow, sometime. It is better that it happens now, than that we paper over the cracks and risk total meltdown in the future. Some people argue that we have already waited too long and that there will now be a repeat of the 1930s with a long-drawn-out and deep depression.

For my part, I am hugely optimistic. Not that I believe that the crisis is over, because it isn’t, but because our eyes have been opened. We have watched – without seeing the danger – whilst a huge pyramid selling scheme of ‘complex financial instruments’ has taken a grip of global finances. These have now been exposed as little more than a complex scam.

Private equity firms have bought companies using bank debt secured against the company. If the company executives can squeeze the company to keep up the repayment schedule then the new owners will be very wealthy. If the company folds under the weight of debt then the bank is left nursing the losses.

Mortgage brokers have arranged loans for people with no assets and no income. Some loans have gone beyond 100% mortgages to 110%. This means a cash-back payment to buy furniture and pay the first few loan repayments. This has then been packaged up as safe debt secured against property, and sold on. When the house ‘owner’ cannot afford to keep up repayments, ownership reverts to the holder of the debt. In a rising market (driven by lax lending) the house can be sold and the debt paid off. When the market crashes (as it eventually must) the banks holding the dept carry the loss. The original mortgage broker has long since pocketed the fee and moved on.

The ‘toxic debt’ polluting the balance sheets of the big banks is the result of such examples of unsustainable lending. As we pick through the wreckage of the crisis governments will be looking for ways to run the economy based on true fundamentals. The cancer of get-rich-quick without delivering true value has to be removed from the system.

peter.mcmanners@petermcmanners.com