Sustainable Economy
The current economic crisis resulted from unsustainable economic practices. In particular:
- over-leveraging (some banks were leveraged around 30-1)
- poor lending practices (especially in real estate)
- use of opaque financial instruments (like credit default swaps)
- financial models that over-relied on past data for innovative ways to spread risk
- a negative savings rate
These practices contributed to an immense creation of paper wealth that did not reflect true economic growth.
The solutions:
- deleveraging back down to reasonable levels
- stopping subprime lending, and perhaps moving to new models like peer-to-peer lending
- more transparent marketplaces and better regulation of instruments like CDSs
- less financial innovation
- a positive savings rate
When the financial sector can resume its function of directing capital toward economically viable enterprises, we can return to true value creation.
Slow Money
One interesting model is slow money: a nascent investing philosophy that focuses on long-term, sustainable value creation in place of short-term capital growth. The idea does not appear to be fully fleshed-out, but there are a few interesting threads:
- join a CSA to build a sustainable local food economy that improves fertility over time
- invest in energy efficiency & renewable energy for your home: it helps finance the efficiency/renewable sector, saves money over time, and slows the depletion of natural resources
More on Slow Money:
changed March 30, 2009