Too Big to Fail

"I wanted to read this book because I didn’t really understand how the global economy managed to get into the current mess. Suddenly the banking system was collapsing and everyone was talking about sub-prime mortgages. And it was fascinating to read this story of greed, egos and disregard for process. There were all these stops and checks to stop things like this happening but the key players had dismissed them all, which was amazing. It was so arrogant. One of the things that is really important to any business is that you need to get money from somewhere to do it. The insight I got was that the money markets seem to be happy to implement some very high-risk strategies if they think they can make huge amounts of money – and they did on paper for many years. And actually we need huge amounts of money to be able to deliver the renewable targets that we are talking about. So it got me thinking, what are the issues within banking, who do they talk about, what do they think and might they be interested in us as a market? It was partly that, but it is also about how we frame renewable energy in a way that can be an alternative to the sub-prime market. I am not suggesting that anybody would want to repeat the risks that were taken there, but obviously people were happy to take a certain amount of risk. What we need to do is to persuade bankers that renewables isn’t a high-risk strategy, and it was interesting reading the book to see what the methods for doing that were. Definitely. Renewable energy is fascinating because it is a very long-term asset. At the moment pension funds can either buy property, which isn’t doing very well right now, or invest in equities, which isn’t a very good bet either. So I think that maybe they should be investing in renewable energy projects, which will happen in the future out of necessity."

"No, he doesn’t. This is purely a narrative – a minute-by-minute account of how the whole financial system nearly went over the brink in 2008, and the astonishing sense of tension and danger involved. It starts with Bear Stearns in trouble and then just charges along. I thought it would take 10 years before anything like this came out. It shows the behind-the-scenes deliberation – why did they allow Lehman’s to fail, which was clearly the thing that precipitated the crisis, and why exactly did they do the bailout in the way they did. Andrew Sorkin covers the markets for The New York Times , and he’s a real insider. The book makes no judgements, which I suppose is why he has such good access. But the thing that’s amazing about it is it’s an absolutely in-the-room, vivid story of the unravelling. When the guys who are running these institutions are swearing and having tantrums and storming out of the room and having panic attacks and ringing each other at 4am, his sources are just so good that he has complete credibility. There’s a scary sense sometimes that there’s no adult supervision – Sorkin’s book leaves you under no illusion that it’s people like us making these astonishingly consequential minute-by-minute decisions, who don’t miraculously know more than we do. The important thing is we have to have rules to prevent things like the recent crash from happening again. The problems are in the design and the structure, and that we can’t rely on enlightened self-interest and the magical power of the markets to self-regulate, because the sums involved are too big, the flows of capital are too quick and the modern financial instruments are too opaque and too powerful. When you have flows of capital of trillions and trillions and trillions of dollars, the risks are just very high to the general polity. People don’t have to be very stupid or very wrong. They just have to be a little bit wrong. And only once. Britain’s four biggest banks added together are five times the size of our entire economy, and these financial instruments are so powerful that they create enormous potential for damage. The self-regulating market just doesn’t function in this area any more. We have to have rules and structures that make it not just unlikely, but impossible for banks to blow up and bring the whole system down with them, because if we don’t do that, to me it’s self evident that it’s going to happen again. A lot of it’s quite boring – to do with liquidity and capital ratios and things like that, and some of it’s more dramatic – about separating retail banks from the investment banks. But we have to get on with it now. Yes. The more we know about this the better; because, by and large, the more you know about it the less you think, ‘oh, it’s all fine.’ And I think, broadly speaking, ‘oh, it’s all fine’ is a concise summary of what governments and regulators have been thinking about the unregulated markets for about 30 years. ‘Oh, let ’em get on with it, it’s fine, markets cannot create any problems that markets cannot solve.’ We now know for sure that that’s not right: The markets can create huge problems that the markets can’t solve. But men make markets, they’re created in spaces that we shape – and now we have to reshape that space. And knowing enough about it to have a view about it is an important part of that."