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What’s gone wrong with finance?



In the last 12 months, the mainstream banks have become embroiled in yet more scandals, crises and irresponsibility. In an extract from a recent talk, Ecology Building Society chief executive Paul Ellis investigates the scale of their troubles, and ponders why the current system is unsustainable.

How do you begin explaining what’s wrong with finance? I started with a list.

The list got longer. And longer. I didn’t get much further back than the last few months before I’d had enough.

First the Libor scandal, which has so far involved Barclays, the Royal Bank of Scotland and UBS. You could say it’s just a bit of gaming in the system, but the reality is that an awful lot of consumer products are set with reference to Libor. And it may well be that in that gaming, there are people who have been put into high levels of debt because products haven’t operated in the way they thought.

Barclays’ name comes up again in relation to tax avoidance, something that’s getting a lot of attention at the moment.

But what does tax avoidance really mean? A friend of mine died last year; having had a heart operation which went wrong, and affected his intestines, he needed help at home. Before he died, he was asked to shuffle down the road to a lamppost and back, to test out whether he needed any help. Because he actually managed that feat, his benefits were removed. He died a few months later.

Cuts to public services aren’t solely the result of tax avoidance, but the fact is that key stakeholders in our society aren’t paying their share. You can argue as to what that share should be. But the reality is, if you want to run a democracy, everybody has to pay.

Then we move on to the spectacular example of HSBC, which until this story broke, had been seen perhaps as one of the better guys.

But it turns out that nobody in the bank had the slightest idea that money laundering was going on, and on a vast scale. One story reported that in one branch of HSBC in Mexico, they had increased the sizes of the teller windows in order to get the drug lords’ boxes of cash through.

It seems that the whole organisation was unaware of this, which I think is a problem in itself. But what does that mean? It translates into other forms of crime such as prostitution, and it translates into people’s lives being wasted by drugs.

Again, people are directly affected by this. This is not some technical infringement by some law. There are direct impacts on society, and on a very large scale.

And then finally, Barclays decided it would stop speculating on food commodities back on February 12 this year. It happened to be just before products that were based on food commodity speculation were named in the European parliament as being some of the most damaging financial products around.

This kind of speculation ups the price of food. That means increased poverty and indeed starvation. Once again, this is not just some technical exercise within financial markets.

These actions are not victimless.

How is it that we came to accept that these things could happen? That’s what amazes me. The idea that greed is good, operating within a mindset that says everything can be handled by the markets and any activity can eventually aggregate to a good outcome, allows people to operate with impunity.

It’s profit at any cost: trying to satisfy the greed of others based on a short-term horizon. We’re then pushed down a risk curve that says, “Anything goes, if we can get the return quickly”.

This ideology is subsequently built into the system: enormous payments to return profits back to the bank or the business unit within the bank, and incentives within the regulatory structure to hide risk so banks can make even more money.

In a sense, theUKeconomy became utterly dependent on the performance of the finance sector. As a society, we were willing to let these people operate, because we feared the consequences of what would happen to GDP if we didn’t get this boost to our economy.

Some of the consequences of this are reflected in our financial infrastructure. We’ve ended up with the problem of concentration, where banks are ‘too big to fail’. The impacts are too huge if we allowed one of these banks to go under.

But they’re also too big to manage, and thus you get scenarios like at HSBC, where the directors said they had no real idea money laundering was going on in Mexico.

We’ve seen banks moving into areas that they don’t really understand, widening activity in order to get profit, and ending up with blurred divisions between retail and investment banking.

But it’s not just the banks themselves that are the problem. The regulatory structure, I believe, is badly designed. It really only works for large banks, and it struggles to accommodate the need to create competition and allow new entrants, especially new mutuals. The shareholder control model in plcs really does not work anymore.

But we are all complicit in this to some degree. We all want big pensions. We all want high returns on oursavingsproducts. We all want free banking, which isn’t really free. Because it hides the real price, this acts as a barrier to new entrants in the current account market.

We didn’t inform ourselves as to how the finance system works. We were happy to be able to get the loans and the high interest rates on our savings accounts, without asking how they could possibly pay these rates. The basic fundamentals of the system were wrong and, inevitably, the whole thing collapsed.

We’ve been too willing to act as consumers, rather than as citizens. We’ve been willing to let the banks do the work for us, and now it’s time to question and be more engaged. That’s where the democratisation of finance really begins.

Paul Ellis is chief executive of Ecology Building Society. He was speaking at the group’s AGM.

Further reading:

Small is beautiful: why alternative banks need to step up to the mark

It’s banking, but not as we know it! Ecology Building Society’s AGM

Bruce Davis, Abundance: ‘we can do something different with money’

‘A small bit of knowledge can help empower you around your own finances’

The Guide to Sustainable Banking 2012


5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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How to Build An Eco-Friendly Home Pool



eco-friendly pool for home owners
Licensed Image from Shutterstock - By alexandre zveiger

Swimming pools are undoubtedly one of the most luxurious features that any home can have. But environmentally-conscious homeowners who are interested in having a pool installed may feel that the potential issues surrounding wasted water, chemical use and energy utilized in heating the water makes having a home swimming pool difficult to justify.

But there is good news, because modern technologies are helping to make pools far less environmentally harmful than ever before. If you are interested in having a pool built but you want to make sure that it is as eco-friendly as possible, you can follow the advice below. From natural pools to solar panel heating systems, there are many steps that you can take.

Choose a natural pool to go chemical free

For those homeowners interested in an eco-friendly pool, the first thing to consider is a natural pool. Natural swimming pools utilise reed bed technology or moss-filtration to naturally filter out dirt from the water. These can be combined with eco-pumps to allow you to have a pool that is completely free from chemicals.

Not only are traditional pool chemicals potentially harmful to the skin, they also mean that you can contaminate the area around the pool if chemical-filled water leaks or is splashed around. This can be bad for your garden and the environment general.

It will be necessary to work with an expert pool builder to ensure that you have the expertise to get your natural pool installed properly. But the results with definitely be worth the effort and planning that you have to put in.

Avoid concrete if possible

The vast majority of home pools are built using concrete but this is far from ideal in terms of an eco-friendly pool for a large number of reasons. Concrete pools are typically built and then lined to stop keep out any bacteria. This is theoretically fine, except that concrete is porous and the lining can be liable to erode or break which can allow bacteria to enter the pool.

It is much better to use a non-porous material such as fibreglass or carbon ceramic composite for your pool. Typically, these swimming pools are supplied in a one-piece shell rather than having to be built from scratch, ensuring a bacteria-free environment. These non-porous materials make it impossible for the water to become contaminated through bacteria seeping into the pool by osmosis.

The further problem that can arise from having a concrete pool is that once this bacteria begins to get into the pool it can be more difficult for a natural filtration system to be effective. This can lead to you having to resort to using chemicals to get the pool clean.

Add solar panels

It is surprising how many will go to extreme lengths to ensure that their pool is as eco-friendly as possible in terms of building and maintaining it but then fall down on something extremely obvious. No matter what steps you take with the rest of your pool, it won’t really be worth the hassle if you are going to be conventionally heating your pool up, using serious amounts of energy to do so.

Thankfully there are plenty of steps you can take to ensure that your pool is heated to a pleasant temperature while causing minimal damage to the environment. Firstly, gathering energy using solar panels has become a very popular way to reduce consumption of electricity as well as decreasing utility bills. Many businesses offer solar panels specifically for swimming pools.

Additionally, installing an energy efficient heat pump or boiler to work in conjunction with your solar panels can be hugely beneficial.

Cover it!

Finally, it is worth remembering that there are many benefits to investing in a pool cover. When you cover your pool you increase its heat retention which stops you from having to power a pump or boiler to keep it warm. This works in conjunction with the solar panels and eco-friendly heating system that you have already had installed.

Additionally, you cover helps to keep out dirt and other detritus that can enter the pool, bringing in bacteria. Anything that you can do to keep bacteria out will be helpful in terms of keeping it clean.

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