This is a very broad-brushed spectrum of possible responses to the financial crash. I'm not talking about businesses, small or large, charities, governments, or any other institutions. I'm talking about the man or woman in the street, with a cashcard.
Some bright sparks will have responded immediately, seen the writing on the wall from the minute there was a run on Northern Rock (five years ago today, as I write), realised that traditional modes of banking were in crisis and rejigged everything from their current account to their pension. I've never met one of these "early reactors" but I'm going to assume they exist.
Other people will have looked at the banks, acceded that they had flaws but plodded on with them anyway, and these people I know exist, because at the moment I'm still one of them.
In the middle are the people for whom the deficiencies of traditional finance crept up slowly. First it was the systemic instability caused by financial instruments that somehow every large bank came to be exposed to, without apparently noticing, let alone mentioning it in their annual reports. This was pretty bad; it led to a global recession, it will probably sink the Euro, it has cast many millions of people out of work and will doubtless echo through some people's entire lives.
This alone was not enough to make me fall out of love with banking the way I'd always banked. The scale of the disaster made it seem pretty unlikely that any of my chickenfeed decisions would make a difference one way or the other.
Ditto, the spectacle of the bailouts and the comedy lack of remorse from the banking cadre.
Then came the Libor scandal; obviously dodgy, too technical to set my imagination on fire. The mis-sold payment protection insurance (PPI) and interest-rate swaps for small businesses seemed too long ago.
The IT failures of the summer were annoying but could happen to anybody. Then, finally, the money laundering, where HSBC had deviated so far from its own safeguards that anybody could arrive with a big bag of money from anywhere, and have instant legitimacy conferred upon them (I imagine it had to be a pretty big bag; for the smaller scale drug dealer, there are probably some hefty charges that we'll find out about ten years hence).
It was no one thing, it was simply the relentlessness of failure and mischief – I can't complain about these institutions and continue to bank with them. I can't worry about moral hazard when I am the hazard: I'm the person whose custom, for which read inertia, tells them that they can do what they like. I've got to move my money. You've got to move yours too. But where, and how, and how much of it, and how radical are you prepared to be?
In the short term …
Move your current account. Three instant objections are a) that I am attached to my current account, b) that I cannot be bothered and c) that this is the one bit that costs banks money. I'm eschewing the one service that they don't rip me off for.
Objections a) and c) are not as daft as they sound, and they are intimately related – banks don't make a huge amount out of current accounts, they get £125 on average a year for fees and charges, and if you leave any money in there, they make a profit on the interchange: that is, by paying you 2% in interest, and charging borrowers 15%. But they see current accounts as a loss leader for other financial products.
Taking it chronologically through your life (a conventional life, with everything in the proper order), they'd sell you a loan, then a pension, then a mortgage, then possibly earnings protection insurance, then accounts for your children's savings. As Louis Brooke, from moveyourmoney.org.uk points out: "They can get you for the resale for the financial markers in your life. Which is why they're happy not to compete with one another."
There is very little in it for them to have a constantly fluctuating market in which customers compare deals on overdraft charges and then move banks; it is far better to foster an avuncular, whole-life relationship, in which your loyalty is repaid by their sagacity and generosity. The "free current account" was a stroke of genius – it makes them look socially useful and open-handed, without impeding their ability to levy charges. If this sounds cynical – the idea that the fixity of the market is deliberate – compare banks to the communications market, which also consists of just a handful of providers. Brooke expands: "If you look at phones, there's a minute plan. Companies compete really heavily, and advertise aggressively on a granular level, and people switch quite happily.
"Analytically, there's absolutely no difference in the pricing plan you'd expect and the ease of the switching process, between a bank and a mobile phone provider. I should be able to say, I only need 20 direct debits a month, I do 500 withdrawals, I want this package."
Well, nobody's that radical yet, but the fact that the market, left to its own devices, throws up this system that is not competitive at all, stacked entirely in the favour of four or five large providers, is a useful thing to bear in mind. The unfettered marketplace is not rufty-tufty and competitive, it is cabalistic, not just in banking but also in energy, supermarkets, public sector commissioning, waste management, almost everywhere. My secret worry is that nice guys finish last and capitalists finish first: but the mainstream isn't capitalism, it's an oligarchy.
In looking around for a better offer, I'm the capitalist.
Anyway, alternatives: the vanilla switching option would be Triodos for savings or Co-op for a current account. They both pledge to be as good as their mainstream rivals (the Co-op was actually voted best current account provider by Moneysupermarket last year), while being customer-centric and ethically-driven.
Mutuals and credit unions offer differences that are more profound – in the first instance, that they're owned and governed by their members, in the second, that they're run as mutuals, and they also lend into their local communities. It is a cracking idea, and one that has caught on in Canada much more than here, but it has technical and systemic problems; it is not uncommon to get a Page Not Found notice when you go to their website, and I know few people with the stomach to put their monthly salary into something so chaotic. Often you have to live or work in the area. At a more profound level, credit unions do not behave enough like banks. Chris Smyth from Leeds City Credit Union asked, rhetorically: "Why aren't we, in this sector, as quick to react as the private sector?"
Wonga, payday loans companies, even pawn shops, have leapt on this recession and made – continue to make – a killing. Credit unions could be filling that role, making short-term crisis loans, in a non-predatory way. They don't chase the business, presumably because they don't want to exploit misfortune; and people don't seek them out, because on some fundamental level (warning – bare assertion coming, not evidence-based), we don't want to borrow money from do-gooders, we want to borrow it squarely from someone who is chasing our custom. We think of this as a relationship of equals, even though if they're chasing our custom, it's most probably to do us over.
In the medium-term …
Having an ISA is possibly the most illogical financial decision I have ever made: I don't agree with tax breaks for high earners, and I don't agree with traditional investments. As Bruce Davis, one of the founders of Zopa, comments, "with investment the dominant narrative is gambling". This is nowhere truer than with ISAs, the nursery slope, where the decision is broken down for you in terms as simple as "are you high risk, medium risk or low risk?"… "but we don't' think about what we're investing in".
You don't just have to make a negative choice with your money – that is, "I don't want to invest in a bank that does x" – you can make a positive choice. You can decide to lend it to small businesses (through Funding Circle) or to individuals (through Zopa). These peer-to-peer lenders are regulated (they have been since August last year) and they look pretty solid; indeed, as Giles Andrews, the CEO of Zopa, said: "It's a new business model but it's not a radical alternative at all. It's for really sensible people who are really good with money.
"Banks had this horrible product called PPI , they were using the profits they were making on that to subsidise borrowers. That was a really good business for them, they made a fortune out of it. Its abolition has resulted in them having to charge higher rates to their borrowers. So bank spreads [this is the difference between what they pay in interest, and what they charge] have risen to 11/12/13% on average."
Zopa doesn't pay lenders as little, nor charge borrowers as much – their spread is a combination of fees, charged to all customers, minus any losses they make on bad debts. But losses are low, because they're much more assiduous at vetting borrowers, about 50% of people are rejected out of hand; only 15% of those who apply ultimately get a loan.
So you get more interest when you save, you pay less when you borrow. "The second benefit is that you get money back each month and if interest rates are going up, you can relend it at a better rate," continues Andrews.
"The third one, which is subjective, it means something to some people and not to others, is that you're lending to other people and doing something more useful with your money than funding bankers' bonuses."
In the long term …
The really slippery fact is that if you really want to change the way finance works, you can do more than eschew it, you can use your money for something better – not just to help people out (credit unions), or help people build new bathrooms (peer-to-peer) but to build things that need building, in the service of the society that you want to create. Davis, since setting up Zopa, has now set up Abundance, wherein you can invest in renewable energy projects, via a debenture, which pays you back your share of the profits as it goes along, and commits to repaying the full sum in 20 or 25 years. The first time I heard him speak, two things ignited my interest: one, you could invest for a fiver.
People with less to save than a typical ISA allowance (£11,280, or half that for a cash ISA) are atmospherically excluded, and people on low incomes are excluded absolutely, from mainstream investments, and slowly we've seen the development of a knowledge-apartheid. Rich people talk about their investments all the time; everyone else assumes they don't understand investments and would need some kind of money sherpa to get anywhere near one. Stripping a project back to its fundamental principles amounts to democratising finance.
Someone wants to build something; they need money; you agree with the building; you have money.
Two, traditional investment houses would never go near a new, untested infrastructure project – say, for example, a windfarm – because it doesn't have the margins for a middleman to make a great deal of money without a lot of work. As a result, the whole of mainstream capital investment is geared towards industries that make the most money for people who don't want to have to do very much. It's not very forward thinking.
Those are pragmatic reasons for finding an alternative investment route; Davis articulates a philosophical underpinning, a central debate – "Should we, as individuals, take responsibility for ourselves? Or should we, as individuals, all work towards a situation that benefits all of us? The radical thing is to say that both those hypotheses can co-exist."
Because windfarms generate such peculiarly strong feeling, both pro and anti, the conversation about whether they should be built at all often crowds out the debate about the possibilities for finance: that here might be unchartered territory, that hasn't already been divided between four juggernaut private companies. Abundance also does solar projects; since the infrastructure is more diffuse and low-profile, it's not such a dramatic way to illustrate the story, but it might turn out to be a less incendiary route into this territory.
Arguably, though, if you have a lot of money, and you do know your way around finance, there are easier, quicker ways to make more money than by investing in a renewables project. You could probably make a fortune shorting the euro. You could buy futures in some or other carbon based energy, whose price will rise until it runs out. In choosing a different model for investment, you're accepting, as Davis puts it, "that your return might not entirely be in terms of money". This sort of talk, around long-term investments that you might be using instead of a pension, puts the wind up me a bit – the only real requirement I have of long-term saving is that it's safe as houses, otherwise there's no point doing it.
Yet, I know people who lost their life savings in 2008; I know pensioners whose investments yield less their allotments, because of the hit annuity rates have taken; I know people who can't retire until the situation improves. And I'm not even that old. Nothing is as safe as houses anymore, not even houses – so a decision to invest in something worthwhile is a sort of financial Pascal's wager. We don't know what things will look like in 25 or 30 years; we don't know if wind will have outstripped conventional energy; we don't know if normal finance will have recovered its equilibrium. But if you take a bet on doing something you believe in, at least you'll have done something you believe in.
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