The job of a bank, apart from looking after your money, is to finance business. The banks are not doing this. They were caught with their systems down, created a lot of toxic debt, got bailed out and have now clammed up. One major bank this week dismissed an investment on the grounds that it is a “start-up” and therefore ‘outside their lending scope at present’ – no suggestion that it was not a good investment. About 65% of the reasons for businesses needing money is start-ups. ‘No new start-ups’ equals stagnation.

It pays to take a quick look at the dedicated approach of Silicon Valley Bank offering various types of finance for different stages of development. Every country aspiring to support entrepreneurs should have its own version of this.

If we are not careful we shall end up with the worst of all worlds as a result of the recession still plaguing us. Printed money must be paid for; borrowed money must be paid back. If we do not have a system for dealing properly with these two phenomena we shall have serious inflation. If it becomes bad enough it could devalue all our currencies including the world’s most important currency, the US dollar. Short term fluctuations are to be expected but long-term the world needs a steady reserve currency. It does not have to be the US$ but if it changes too quickly the fallout will be frightening.
What are the signs so far?

There is uncertainty about where the world economy is heading. The experts disagree.

The superficial signs are that there is a trend towards recovery and certainly money has been made on the stock markets as they bumble their way up and down for temporary reasons. The underlying data suggest a different picture. Job losses are continuing and we cannot even assess the ‘hidden’ job loss equivalents of reduced wages and unpaid staff. A significant number of company directors coming to me for guidance are taking no pay in order to avoid losing their senior employees to competitors; but directors need to be paid too. The title itself infers only responsibility.

Credit taken by customers is extending way beyond prudent business into virtual theft. This is particularly true of the larger companies in their dealings with Small & Medium Enterprises (SMEs). It has even extended to some governments around the world delaying payments to their suppliers. The dangers of bankrupting smaller companies who provide a high proportion of total employment are self-evident.

Banks have downsized without rescheduling the workload; the smaller staffs are quite unable to cope. A major European bank told me this week that it was not their practice to inform a client when his relationship manager left the bank. Can you believe it?

When you don’t know where you are heading it is difficult to know what to do. However, we can learn the lessons of actions taken so far. Top of these is the folly of simply bailing out the banks.
Sure, they can then resume their inflated bonus payments, but for what? Not for lending, apparently.

When the pump runs dry you need to prime it. You do that by pouring water into the stem, not by handing a pail of it to administrators. Direct support for existing businesses and good loans to start-ups make more sense than putting the cash through banks or a long chain of inspectors.

Liquidity is the problem and serious efforts have to be made to increase it. Statutory control of payment terms is a pre-requisite to making the money move around faster. It is legitimate that those who have obtained goods or services should pay promptly for them. Without it many more companies are going under.
We need capital for new businesses. When the pump runs dry you prime it by pouring water into the stem. Direct support for existing businesses and decent loans to start-ups make more sense than putting the cash through banks or a long chain of intermediaries.

The conventional sources of finance are barely operating. We must look to research funds, specialised development funds and real risk-taking funds to supply the priming capital new businesses now need. And, above all, to individuals who have made their money and now want to give a start to the next generation of entrepreneurs.

It is one of the first rules of life that when you don’t know what to do you get help and work out what to do. If you don’t, you risk being one of the casualties, too.

Here’s how to turn adversity into sanity:
What goes down must come up – even if we don’t know when. If the earnings of companies you might invest in are not as susceptible to recession as most shares, buy them. You may have to sit tight for a couple of years but they will come up again.

If your job is threatened – or lost – consider what you’d really like to do. We succeed best when we enjoy what we are doing. A look at your career, past and future, is something you can profitably do now. This may also be a good time to start a business. You will find it difficult to get finance from the bank, but that in itself is a good discipline. If you cannot persuade them to believe in your project ask yourself harder questions before starting.

What is the opportunity for capitalism now? The old model has failed but it wasn’t all bad. It financed the world we live in with its high-tech, high mobility, high quality medicine and high education. Many have benefitted from this. Can we re-stimulate the economic cycle, omitting the faults and making it work better for everyone, not just for the few?

What can we learn from the Grameen Bank? Muhammad Yunus started it to micro-finance the very poor. What about a version of it higher up on the financial ladder to provide capital and loans for new and developing entrepreneurs? Every society needs to encourage its young. There is no reason why governments shouldn’t be involved in this on behalf of their citizens. If you think Governments should not be involved in business study what has just happened in the money markets.

Look beyond public money for this pump priming, too. Business has a life cycle; why should it not finance the early stages of the next cycle? Corporate Social Responsibility (CSR) could have no greater aspiration than to see future generations flourish. Why shouldn’t you and I invest, too, perhaps with some modest level of safeguard and guidance?

Above all, why shouldn’t the people who have been hit hardest by the financial scandal determine the regulatory process for the future? If we put discipline back into the hands of the regulators who landed us in the mess they will do so again. Fresh thinkers won’t be perfect but at least they will see the wood for the trees, something the present lot failed to do.

There are pitfalls to be avoided. By merging banks we create an even bigger cartel than we already had. We must prevent the power that is being put into the hands of very few bankers from becoming another weapon of mass destruction.

Regulation must not become so overwhelming that business grinds to a halt. A bank with whom I have banked in credit for over ten years wants me to present myself, my passport and my NRIC in person at their counter to open a new account. No wonder trillions went missing; they were probably stolen while bank managers were examining the dental records of established customers. Let’s not fall straight back into that