This is what he said about banks: “I meet many people who run small and medium-sized enterprises and the thing that really makes them angry is that, having built up a business often over several generations and had the same banking relationship for 60, 80 years, then suddenly comes a letter churned out of a computer saying the terms of our relationship have changed; and I have seen many of these.” He added: 2It is heart-breaking sometimes. It is a lot harder to build a business than it is to sit in London and trade away.”

Dr King was venting his frustration over banks’ treatment of customers. Mind you, that’s the problem with bailing banks out. It kills evolution in the banking sector. But at least new banks seem to be emerging anyway. Maybe they will offer the service that the current crop of banks seem unwilling to offer. See: The great banking experiment: what matters most – price or service?

The second hornets’ nest relates to the UK’s Deputy Prime Minister. In the build up to the election, Nick Clegg was critical of Conservative plans to slash the fiscal deficit. And yet once the allure of power was waved in front of his eyes, all those doubts seemed to evaporate.

So why did Nick change his mind? Well, our Nick reckons he bumped into Dr King while treading the road to Damascus. The Lib Dem says the Bank of E man made it absolutely clear the government had to do more. But yesterday the central banker told a House of Commons select committee he said no such thing: “I said nothing that was not already in the public domain. In the telephone conversation I basically repeated what I had said at the press conference,” said the good doctor.

Actually, none of the politicians were honest with us before the election. Deep down inside they must surely have known cuts would have to be deeper than they were saying. But had they told the truth, they would not have been elected. Alas, the British public don’t vote for politicians who tell the truth, who say “I Don’t know””when in reality no one really knows, and they don’t vote for politicians who tell us things are going to be bad.

The final hornet’s nest that Dr King ruffled yesterday related to the economy. He said that because of the hike in VAT, inflation would stay above target for around 18 months. His colleague on the MPC, Charlie Bean, went further, saying: “Inflation has surprised us on the upside fairly consistently in the recent past. Some of that is because there have been unexpected events like oil prices that are substantially higher now than they were two years ago, but there are other aspects where basically our initial judgement about the inflation process turned out to be incorrect. In particular, it looks as if the effect of the depreciation of sterling has been rather larger and faster than we were expecting.”

But for all his doubts about inflation, Mervyn King hinted that rates would stay low for the foreseeable future. And he is right. The truth is, there are two types of inflation. There is the inflation that can get out of hand, caused by demand being greater than supply; this is what we had in the 1970s, and it got worse and worse. Then there is inflation caused by external factors. The VAT rise, the hike in oil and the fall in sterling are what lie behind inflation. In all three cases they have the effect of reducing demand. You will recall under Mrs Thatcher, a VAT hike was seen as an anti inflationary policy – at least in the long run. High oil, higher VAT and a cheap pound have the effect of reducing demand for UK consumers. As such, these forces are deflationary in the long run.

But where things can go wrong is when wages rise to match the increase in one-off costs. This is where we risk seeing an upward inflation spiral.

In other words, the good news is that inflation is unlikely because the recent price hikes have not been met with hikes in wages. The bad news is that the recent price hikes have not been met with hikes in wages.

It appears, or so say the scientists, that the oil floating around in the ocean is evaporating before it reaches the Florida coast. See: What’s that – good news from the Gulf of Mexico?

The damage to Louisiana was awful, but the damage to Florida may be more psychological.

Bloomberg quoted US Florida Representative Kathy Castor as saying: “The oil is hundreds and hundreds of miles away… Yet the word has gone out all across the globe [that] the Florida beaches are damaged.” See BP Oil Leak Avoids Florida, as Do Tourists Who Think Otherwise

According to CNNMoney: “For many businesses in this region of the Gulf, it isn’t the oil that has hurt them the most, it’s tourist anxiety. When vacationers are jittery they book trips elsewhere, even if there’s no oil on the beach.” See 100 days after the spill

 The Florida tourist industry is worth around $66bn a year. Just imagine BP being forced to foot the bill for all the damage to the Florida tourist industry. It is doubtful the company would survive.

Tony Hayward reckons he was vilified and demonised. He is probably right. To many Brits he comes across as a decent bloke who was misunderstood. He was clearly not responsible for the oil leak when it occurred, and it does appear that BP did everything it could to deal with the leak. Those who say it should have done more, or that the US government should have done more, are living in a land that is populated by clouds and cuckoos.

But the backlash against BP in the US is such that little things like facts and truth are irrelevancies. For that matter, one can’t help but wonder whether any US based investigation will be wholly objective.

Once a crowd acts in unison, it takes little short of hell freezing over for the crowd’s constituent parts to change their minds.

Such madness of crowds is not always a bad thing. The spirit of the Blitz won the Second World War for Britain and her allies; the mourning at the time of the death of Diana Princess of Wales may have been quite extreme, but it did no harm, and at least it demonstrated crowds can care. (There could even be an evolutionary explanation for madness of crowds.)

The media is not solely to blame. The media is like a mirror – it reflects back its public’s views. It would be wrong to say the media moulds public views; the process is more subtle than that. It may be better to see madness of crowds as akin to two magnifying mirrors facing each other: a public and a media glass. Each reflects back the image they face, but magnifies it.

Clearly the damage done to the Florida tourist industry thanks to BP’s negative publicity is down to the complexity of crowd behaviour. But it is crowd behaviour that may yet force BP to fork out more money.

But just suppose the inquiry into the oil spill finds that BP’s safety standards were no worse than those employed by other oil companies, and that they adhered to regulatory requirements. Suppose the inquiry finds that the company did all that was possible to fix the oil leak and clean up the mess. Suppose it found that Tony Hayward was put under more stress and pressure than one could realistically have been expected to withstand. Supposing the inquiry finds that Hayward’s £10 million pension was justified as his pension pot was earned over 30 years. What then: would BP and Hayward be able to sue the mad crowd?

This is the snag with crowds. They have enormous power, and no responsibility.

Evolution works by failure. Evolution works by constantly experimenting, and the experiments that work are repeated, and out of these come both extinctions and population explosions. Evolution has ceased to function in the world of banking because failure is not allowed. Banks may say their service has evolved, but they are not using the word in its correct sense. And as a result their public is the loser.

But the question is this: if evolution had been allowed to work with banks, and in 2008 they had been allowed to fail, what would have emerged in the vacuum that was left? It is actually almost impossible to predict what New Banks version 2.0 would have looked like.

But now, despite the fact that banks required billions of government money in order to survive, we are seeing a new generation of banks evolve anyway.

Today Metro bank opened its doors in Holborn, London. As you know, Tesco and Virgin have plans for a network of High Street banks.

And while this column is a fan of the Internet, we would say that the Net sometimes feels like a force for making things worse. Does anyone like dealing with call centres? And the bigger the Internet brand, the harder the company is to deal with on individual basis. If you are a business with a gripe against Google, you stand no chance whatsoever of getting the company to listen to you. If you are selling a book over Amazon, and are not happy with the service – well, that’s just too bad. But does anything top the banks for making things less personal?

If you are of a certain age, you may recall a TV advert back in the 1980s for Barclays, portraying a nightmarish scene from the future in which some hapless individual battles with robots and computers when all he wants is “to talk to someone”. If you have seen the film Blade Runner, you may get a feel for the atmosphere created in the ad. In fact, it was directed by Ridley Scott – director of Blade Runner. See Barclays Blader Runner ad

It’s all a tad ironic, because these days Barclays is one of the worst offenders. A quarter of a century on and the impersonal world those ads prophesied seems to have come true.

And so it is that Metro will offer a branch service which is open 12 hours a day during the week, from 8am to 6pm on Saturdays, and High Street hours on a Sunday. It will be possible to go the bank and open an account within 20 minutes, have your new card printed on the spot. Local businesses will have a local business adviser who will be able to make decisions. But above all, the bank’s customers will be able to talk to someone, in person, and if they are regular customers, they will be able to talk to people they recognise from previous visits.

In short, a return to old-fashioned banking, with a kind of twenty-first century Captain Mainwaring in the manager’s office, but working longer hours.

There’s a snag. Service costs money.

Apparently none of Metro’s products show up in best buy, top ten tables. The bank does not vary the prices it charges customers according to their risk profile. This of course is precisely what people have been calling out for. But also it does mean, or so David Black From Defaqto has suggested, customers will be turned away from the bank.

And that really is the point. Banks have become impersonal beasts, in which all decisions seem to be made by computer. But this has resulted in cheaper banking. We long for a return to old-fashioned banking that puts the needs of customers first, offers a personal service, but at the same time follows twenty-first century practice in terms of trading hours. But in reality such a service comes at a price, and it remains to be seen whether we are willing to pay for it.

This is a tad ironic, because it seems that the IMF can’t even make up its own mind over whether the yuan is undervalued at all.

Yesterday saw the publication of a new report from the IMF on China. And it was good.

“Growth is expected to continue to be robust, while the inflation outlook appears benign,” said the IMF report.

Of course China does have a problem, or is that problems.

Capital Economics put it well yesterday: “China is seeking to rein in bank lending and hold to a conservative fiscal stance while maintaining rapid economic growth. It cannot do all three.”

Clearly China cannot rely on exports as its engine of growth – the US and European consumer has run out of puff. China is trying limit bank lending, and is spooked by its fiscal deficit. Actually, China’s fiscal deficit is a mere 2 per cent of GDP, but after lecturing Western economists on their recklessness, China’s attitude towards government borrowing is one of extreme caution.

The best piece of news on China has been the recent trend of wage increases. What China needs is to see a higher proportion of the money that corporate china is generating to be taken out of those profits and fed into wages.

But what about the yuan?

This is what the IMF said: “Several directors agreed that the exchange rate is undervalued.”

But then it also said: “However, a number of others disagreed with the staff’s assessment of the level of the exchange rate, noting that it is based on uncertain forecasts of the current account surplus.”

The truth is, the cheap yuan is not the demon it is made out to be.

The arguments have been rehearsed here before, but here is a brief recap.

China’s policy of keeping the yuan cheap is little different from the policy adopted by the US in the nineteenth century when it was a developing economy. So the US is being just a touch hypocritical in calling for China to do things that it patently did not do.

China is a big country. While it could be argued that a more expensive yuan would benefit some regions, other regions desperately need the yuan to stay cheap. There is a parallel here with the problems in the eurozone.

If China was to truly open itself up to international markets, then Chinese savers may well put their money into investments abroad. No one knows what effect this would have, but there is a possibility it would keep the yuan down.

If the yuan was allowed to appreciate, then China’s international standing would automatically become greater. Its GDP measured in dollars would close in on US GDP; its defence budget would be similar in size to the US budget; its companies would enjoy much higher capitalisation – for example, Petro China would dwarf Exxon Mobil. It seems unlikely that the US politicians who are so vocal in their call for a floating yuan have factored in the resulting rise in China’s political might.

The above arguments do not mean that the yuan should not be allowed to appreciate. China needs more consumer spending, and a more expensive yuan would be an important step in that direction.

But the arguments are complicated, and the case for a rising yuan is not as clear cut as some would have you believe.

Helping number one came in the shape of the latest figures on US consumer confidence. You may recall, this fell sharply last month. In fact, there are two barometers of US consumer confidence that economists monitor: the University of Michigan measure and the Conference Board measure. Both indices fell in June, but the Michigan University index saw the more dramatic fall, just about cancelling out all the rises seen over the previous 12 months. Yesterday the Conference Board measure for July was out, and it was down again. It has now fallen from a recent peak of 62.7 in May, to 54.3 and now 50.4. Okay, the index is still way up on the depths it sunk to during the recession, at one point falling to just 25.3, but then again, the index was much higher going into the last recession, so the runes are not looking promising.

Helping number two relates to the US housing market. Actually, at face value the latest news was not so bad. According to the S&P Case-Shiller 20-city index, prices were up 1.3 per cent in May, and that on a seasonally adjusted basis. It was the second successive month for price rises, and annually the index is up 4.6 per cent. The big snag is that the recent hikes in the data relate to that period just before the end of the first-time buyer tax credit. What is more worrying is that in the second quarter of this year no less than 18.9 million homes were empty. The quarter also saw the highest number of repossessions in US history, with 269,962 homes taken into possession.

You probably know that one of the big differences between the US and UK property slumps has been repossession numbers. In some ways the attitude of US banks brings back memories of British banks in the early 1990s. Banks’ ruthless attitude to repossessing properties in the UK during the early 1990s made the property crash worse, and in the process may have left banks with more bad debts. This time around banks have a more sympathetic attitude, are more helpful towards lenders who are behind in their payments, and as a result we see fewer forced sales of properties. This is probably the single biggest factor for explaining why the fall in UK house prices has been so modest.

And yet don’t be too quick to slam US banks for their thoughtlessness. The rules in the US are different. In the UK if your property is repossessed, and your bank finally gets less money for it than the mortgage, you are still responsible for paying the difference. In the US, once a property is taken into possession, the mortgage that was taken against the property becomes the bank’s problem. Take that into account and you can see why US banks have a less sympathetic attitude.

But there is a good side to the US way of doing things. At least under the US system the bad news can be got out of the way all the quicker. In Europe, much of policy seems to be designed to simply put problems back. As if the motto is: “Why deal with a problem today when tomorrow things might be easier?” It’s a seductive way of doing things, but then such an approach may make the economic hard times stretch out for longer. In fact, this European way seems to have more in common with Japan’s approach in the early 1990s. So it is possible that the US might see a sharper slowdown, but much quicker recovery.

Helping number three of evidence pointing towards a US double dip comes from Robert Shiller, the very same Shiller who lent his name to the Case-Shiller property index. He was quoted as saying: “For me a double-dip is another recession before we’ve healed from this recession. The probability of that kind of double-dip is more than 50 per cent. I actually expect it.”

So that’s not very encouraging.

And then there was Jim Rogers. Now Mr Rogers is known as a hedge fund guru, and is, by the way, a former partner of George Soros. He told CNBC: “The world is going to be in worse shape because the world has shot all its bullets.” He said that since the beginning of time there has been a recession every four to six years, meaning the US is due a recession in 2012. But he said that because the full arsenal of weaponry was fired at dealing with the last recession, there will be nothing left for the next one.

He also struck a somewhat cynical view on Ben Bernanke’s policy of creating money when he said: “Is Mr. Bernanke going to print more money than he already has? No, the world would run out of trees.”

These comments from Mr Rogers go right to the core of the debate. Is it possible that every time governments try to interfere by softening the effects of a recession, they end up making things worse?

Maybe the economic cycle is good for the economy, with each recession creating an opportunity to purge bad ideas from the system.

There is certainly a case to be made for saying Alan Greenspan’s heroic antics while he was at the Fed, managing to cushion the effect of each crisis, from savings and loans, Argentine default, Asian crisis, Russian crisis, LTCM and dotcom crash, actually shored up an even bigger set of woes to hit us down the line.

And yet for all the bad news, Capital Economics, which by the way was very bearish on the US economy in 2007 whilst others were still dismissing talks of an impending recession, reckons the US growth rate will merely slow next year from 3.5 to 2.5 per cent.

Before we tell you about the good news, here are a few more comments on the departure of Tony Hayward.

He looked a dejected figure yesterday, and when he described himself as demonised, you can understand why.

Some commentators in the US media said that there was never anything anti British about the BP media coverage. Some think that the US public will warm to BP when they hear its new boss, Bob Dudley, speak, and the clear tones of his American are revealed. But then other commentators disagree, and say the US public were indifferent about Hayward’s British accent, and it was what he said that upset them, rather than his accent.

But then again, these commentators themselves may have missed the point. Tony Hayward clearly was upset over the BP debacle. Very upset indeed. But his British sense of understatement meant that his feelings were not made obvious.

His problems in the US were not so much related to there being an anti British feeling, but did relate to a cultural misunderstanding.

As the saying goes, Britain and America: two countries separated by a common language.

There is something terribly ironic about Mr Dudley’s appointment being greeted with talk of a new era of safety first at BP. This is precisely what was said when Hayward was promoted to the role of BP CEO.

Mr Hayward reckons that once the exhaustive inquiry has finished, it will be concluded that BP’s safety procedures were in no way inferior to those at its rivals. BP was just unlucky.

Talking of luck, before he has had time to sit comfortably at his new desk, BP’s new boss has got good news to contend with.

According to a report on Bloomberg, the oil currently floating on the ocean in the Gulf of Mexico is dissipating fast.

It is all a bit scientific. First there was the Loop Current that took the oil towards the Florida coast, then a counter flow of eddies, known locally as Eddy Franklin, met the current, with a circular flow being created. So, much of the spilled oil is in a loop. It won’t stay there for ever, and the Loop Current will force it towards the Florida coast eventually. But the latest studies suggest that by then the oil will have evaporated.

It could be very good news indeed, and could ultimately reduce BP’s bill quite significantly.

You see what a difference a new boss makes?

BP had an impressive quarter. In the event profits came in at $5bn, using the replacement cost measure that oil companies prefer. This was a profit after deducting one offs, of course.

Alas, one offs included $32.2bn to cover the costs associated with the Gulf of Mexico oil spill.

All in all, BP made a loss in the quarter of $17bn.

Apologies for this, but we are now set to use some jargon. Analysts usually define a loss on the scale suffered by BP as “a lot of money”.

Although don’t get too carried away about this. In the scheme of things, BP’s loss was like a piddle in the ocean (or is that an oil drop in an ocean). After all, a company that used to be called AOL Time Warner lost $98.7bn back in 2003. (But of course there are differences; the AOL Time Warner loss was predominantly a paper loss, and was only so large because Time Warner had over-valued AOL in the first place.)

And yet, BP’s outgoing boss is to be given one year’s worth of salary and a pension worth £10m. Not a bad reward for having become known as the most hated man in America.

It is just that much of the criticism aimed at Hayward was unfair. For one thing, he was not responsible for any of the cost cuts that may have caused the oil leak. The great cost cutter was his predecessor, Lord Browne, the man who is now a government adviser.

In all the recriminations over the banking crisis, we were told that rewarding people for results was good, but there had to be a sufficient time lag to ensure good company results were based on solid foundations. But how long should this time lag be? Will it ever be long enough?

Lord Browne must count himself lucky. Leaving the company as he did under a cloud, he is busy dishing out advice while someone else is slammed for the errors that were made under Browne’s watch.

There can be no doubt, Mr Hayward is a terrible PR man. But maybe his biggest error was to be British. We are not saying there was anything xenophobic in the US’s BP and Hayward bashing, rather the American public just didn’t get him. Maybe it was his British understatement that was his undoing.

Of course, under Stalin’s Russia, anyone erring on the scale seen at BP would have been carted off to Siberia. This is rather apt, because it seems Mr H will remain involved in BP, but with its TNK-BP venture based in Siberia.

Meanwhile, his replacement at the BP helm, Bob Dudley, only happens to be the same Bob Dudley that headed the TNK-BP venture, but left under a cloud of his own. At least, it was a cloud as far as Russian authorities were concerned.

It seems hard to believe that there was a time when BP interests in Russia were like a millstone around its corporate neck. In a world of political uncertainty, it seemed BP’s best hopes resided with its US based assets. Now it may be the Russian and Libyan ventures where the stability lies.

The National Institute of Economic and Social Research reckons we will have to wait until 2015 before consumer spending per person equals the levels seen at the peak of the boom. It sees future growth coming from exports. The ITEM Club said something similar on Monday, saying that it is now time for business spending on investment and exports to take off where consumers and government spending can go no further.

The banking stress tests were just awful. The tests looked at a worst case scenario and examined whether banks would be able to retain a Tier 1 capital ratio of 6. Its conclusion, of the 91 banks it looked at only 7 would be unable to meet this criterion. In other words, just seven banks failed the tests.

But the assumptions behind its worst case scenario were absurd. The EU assumed there would be no sovereign debt default. If you are a regular reader here, you will know that such an assumption was based on hope and little else. EU politicians seem to have found a new place they can call home, and that place is a large hole in the sand where they can bury their heads.

In any case, who said a Tier 1 ratio of 6 is appropriate? As Capital Economics pointed out, if instead it had called for a ratio of 7, 24 banks would have failed the test and 11bn euros would have been required to sort the problem out, instead of the 3.5bn euros under the assumptions actually used.

The truth is, the chances of a eurozone-wide banking crisis remain high. Countries such as Greece, Portugal and Spain desperately need a cheaper currency relative to Germany’s currency. But since their debt is measured in euros, then if they were to do the eminently sensible thing and exit the euro, the value of their debt would shoot up and default would be unavoidable.

So, if UK consumption is in recession, if government spending is set to plummet, and if a banking crisis could yet stymie our main trading partners, where is UK growth to come from?

Turkey is one such place. Unlike much of Europe, its population is young. Economists believe that within ten years Turkey could be the second fastest growing economy in the world. And that is why Cameron is there, around now, singing its praises and calling for it to be allowed into the EU.

He is expected to say: “I will remain your strongest possible advocate for EU membership and for greater influence at the top table of European diplomacy” and “Together, I want us to pave the road from Ankara to Brussels.” And he is expected to add: “I believe it’s just wrong to say Turkey can guard the camp but not be allowed to sit inside the tent.”

And then it is off to India. The problem we have with trading with India is that the economy of the subcontinent makes trading difficult in precisely the areas where the UK is supposed to have a lead, in banking, legal and accountancy sectors.

Next year, India may well be the fastest growing large economy in the world – overtaking China. And the UK has one big advantage over other countries wishing to trade with India – a high percentage of its population are of Indian descent.

It is time for economic links between India and the UK to go beyond good curries and outsourced call centres.

NIESR reckons the UK will limp forward this year and next. It has forecast a growth rate of 1.3 per cent for 2010 – which implies of course that since the UK expanded by 1.1 per cent in Q2 and by 0.3 per cent in Q1, it will go perilously close to recession in the second half.

As for 2011, NIESR has forecast a growth rate of 1.7 per cent. But it has a caveat. This is what it said: “Tax and spending plans in the Emergency Budget will reduce the economic growth rate by 0.4 per cent in 2011. This has raised the probability of a decline in output in 2011 as compared to 2010 from 14 to 19 per cent.”

In other words, the austerity Budget has meant the chances of a recession next year have gone up.

This does not necessarily mean the Budget’s cuts weren’t essential. A double dip recession may simply be the price we have to pay for long-term sustainable growth.

Yesterday, it was told here how the ITEM Club from Ernst & Young is predicting that business is set to take up the charge. Its economic guru Peter Spencer said: “It is time for businesses to take advantage of the tax incentives presented in the Budget. This time the consumer is in no position to pull us out of recession, indeed the outlook for households continues to be bleak – what with pressures from the labour market, pay pauses and higher taxes there will be a major strain on real disposable incomes in the short term. The impetus for the economy has to come from business spending, private sector employment and entrepreneurial initiative. Without that response, it will certainly be very hard for the government to pull off the trick of retrenchment and recovery.”

NIESR came at the problem from a different angle, but effectively drew the same conclusion as the ITEM Club. It reckons the UK savings ratio will be 6 per cent. It said: “Per capita consumer spending will not reach its pre-recession peak until 2015.” It forecast that future growth will come from trade.

We are a tad worried about the current return of savings.

For individuals, especially baby boomers who face impending retirement, savings rates must rise. But for the economy as whole, rising savings could be disastrous.

The same argument applies to house prices.

The idea that soaring property prices could provide for us in old age was perhaps the single most dangerous idea of the noughties. For an individual this approach may work, but for the economy as a whole, reliance on rising house prices can be crippling.

In the long run, the only way the needs of the baby boomers can be met is by rising productivity. Only if the UK is able to produce more goods and services per working person, can it avoid a crisis when the baby boomers retire.

Surging house prices were a bad thing because they fooled us into thinking we were doing better than we really were, and would-be entrepreneurs were seduced away from creating wealth to speculating in property instead.

It is like that with saving. Saving is fine providing that the money saved is then invested into businesses that can have the potential to create wealth. If, instead, savings simply slosh around the system, pumping up gilt prices and then gold, then we are effectively seeing potential being sucked out of the economy. The final result of this may be deflation and negligible growth, and paradoxically, a consequence of a rising savings ratio could be that debt, measured in real terms, will rise.

And so the saint and the boy continue their unlikely double act. Saint Vince said: “I’ve heard the problems businesses are facing in getting bank loans up and down the country. They need innovative ways to access finance from other sources to grow our firms and economy. That’s why this green paper is so important as we look to help viable firms get the money they need.”

Boy George said: “As the economy recovers, it is crucial to ensure that the supply of finance supports rather than constrains demand and business confidence. If businesses are to play their part in promoting economic recovery it is important that they are able to access a diverse range of finance choices in a stable macroeconomic environment.”

The official communiqué said: “The paper explores every major finance option, including more use of equity and encouraging venture capital and ‘business angels’ to invest in a wider range of businesses, and a responsible return to securitisation. The paper sets out options for the industry, such as an insolvency moratorium on companies restructuring their debt, increasing transparency in bank loan applications and fostering competition between banks and finance institutions.”

And then, with his halo shining above his head, Dr Cable said: “There are an awful lot of successful medium-sized businesses that can’t even get into the London Stock Exchange because it is very expensive to list. They even find it hard to get on to Aim, which is supposed to be for growth companies.” Vince’s big idea is to bring back regional stock exchanges, perhaps with exchanges in Edinburgh and Manchester, and maybe Birmingham.

In some ways the idea of regional exchanges seems odd. After all, these were the mechanisms many businesses used to raise funding back in Victorian times and in the early decades of the 20^th century. The Birmingham stock exchange was formed in 1845, for example, and was absorbed into the London exchange in 1971. In this modern day Internet era, in which global communication is breaking down international barriers, there is something quite quaint about the idea of getting local investors to invest in local companies.

But there is more to the idea than that.

In the post credit crunch world, equity investment is respectable and leverage has become a dirty word.

“Why, you no good son of a leveraged banker” may not be an insult in common parlance, but then again language, changes and evolves.

Nicholas Taleb, the man who penned The Black Swan, and introduced the idea of high impact–low frequency events – or the impact of the highly improbable, has now been promoted to the rank of high priest of the ‘told you so’ economic writers/commentators. So high is Taleb’s stock that even David Cameron worships at his altar. Even saints such as Vince himself play second fiddle to Taleb.

And the author of The Black Swan is an arch critic of debt and a fan of equity.

So, when dotcoms crashed, to be followed by a wider stock market crash at the beginning of the last decade, the global economy carried on, suffering no more than a handful of mild recessions scattered around. But, says Taleb, when we get a crisis of leverage, the result is a global recession.

For our liking, Taleb is a tad too cocksure. It is actually quite easy to say, “I don’t know, but it might happen,” which is essentially what Taleb says. Debt is not always a bad thing, With every crisis we tend to overreact and over-compensate for past errors, and in the process sow the seeds for the next crisis. We saw a debt bubble burst; this is not the same thing as saying all debt is bad, as Taleb maintains.

But for truly innovative and entrepreneurial businesses, debt finance makes no sense. And if we want our banks to take less risk in future, then they too should shun funding the businesses with the greatest potential.

After all, high risk and high potential normally go hand in hand. For every Google that made it big, there are dozens, nay hundreds, of companies with similar-type plans that went bust. The trouble with bank funding is that the most the backer can hope for is a return based on the rate of interest, but the risk of outright default is always present.

It only makes sense to invest in high-potential companies if the investors get a share of the upside. In other words, if we want a truly innovative entrepreneurial economy, we need a lot more equity investment, while bank loans to individual businesses should be seen as what they are, an irrelevance in promoting enterprise.

On the other hand, bank loans to companies which in turn invest in lots of enterprising businesses, do make sense.

Here is an idea: what about business investment securitisation? Each time an investor puts money into a start up, the investment is chopped up into little bits and sold on the market. What name could we have for these securities? How about CSOs – collateralised share obligations?

Of course, we all know that derivatives are weapons of mass destruction, and securitising equity investment brings back far too many memories of the noughties boom.

But that’s the point. Not everything about the noughties bubble was bad. Securitisation is not always a bad thing. Maybe this is what was meant in the Cable–Osborne paper by the phrase: “a responsible return to securitisation”.

As for Vince’s idea of regional exchanges, will it work? To be honest, probably not. But then again, we can’t know for sure, and maybe this is one of those occasions when it is worth a punt.

Because there is one thing that can be said for sure; when it comes to investing in entrepreneurs, for the economy as a whole it is far too risky not to.