Sean Garman: Cities are key for economic growth

Sean Garman works in corporate finance in the City of London and is a member of the Conservative Party’s Business Relations grouping. He is a also a committee member of City Future – the under 35s organisation for Conservative supporters in the City of London.

The change in planning laws to simplify development may be a nice concept to spur economic development but it runs against the latest empirical research which shows that city development rather than rural development is critical to economic growth. If we are serious about growth then our reform focus must shift to the areas that have the greatest potential to drive that growth: British cities and towns.

Many people have an idyllic or utopian view about living in the countryside. That is understandable given the numerous benefits it can confer. However, anthropological research has shown that human beings are hardwired for higher density living. We can conclude that our idyllic desire to live in the countryside does not stack up with how we act. Human psychology is important when designing policies and it seems that we have already forgotten the “nudge” concept that once was our intellectual underpinning. The new planning laws may lead to unsustainable development in rural Britain rather than be based off what is proven to work and fits in with human psychology – higher density urban living as a population grows.

If we take it that humans are hardwired for higher density living as a population grows then we need to look at the impact cities have on productivity, creativity and innovation. Studies have indicated that a doubling of population can increase productivity anywhere from 6 to 28 percent. Cities also provide ‘hubs’ (areas of specialisation), for instance London is a global financial hub and is developing its creative industries while Silicon Valley maintains its predominance in information technology.

Sean Garman: Politicians cannot say banks have lent irresponsibly and then rebuke them for not giving every person a mortgage

Sean Garman works in corporate finance in the City of London and is a member of the Conservative Party’s Business Relations grouping. He is a also a committee member of City Future – the under 35s organisation for Conservative supporters in the City of London.

The Prime Minister’s comments reported last week in the Telegraph - that banks and building societies have gone “too far” in preventing “good risk” home buyers from getting mortgages - represent the bizarre double standard that we have come to expect from politicians in our democratic system. MPs are the first to “man the barricades” in decrying the banks as irresponsible, aggressive risk-takers who destabilised the economy. However, these same politicians are the first to demand that banks continue to lend money irrespective of whether they ought to or not. Now with property, politicians are now engaging in populism.

Bank lending needs to be sustainable but if we have just been through a property bubble then it does not make sense to ask for a re-emergence of lending at potentially unsustainable levels.

Everyone acknowledges that securing affordable finance is the key to getting on the housing ladder. Yet we continue to think of property financing via the prism of debt. It would be healthier for us to be more innovative; for instance, look at equity financing in the property market. This increases people’s disposable income as interest costs represent a lower component of their expenditure. It means that people can save, consume or invest their higher disposable income.

Sean Garman: Splitting up the banks will cause more problems than it will solve

Sean Garman works in corporate finance in the City of London and it a member of the Conservative Party’s Business Relations grouping. He is a Committee member of City Future – the under 35s organisation for Conservative supporters in the City of London.

The recent appointment of an investment banker to the helm of Barclays has raised the profile of banking once again. Vince Cable and other left-wing politicians and commentators have stated that separating retail from investment banking is vital for the health and stability of the sector. This is a hopelessly misguided analysis based on ideology rather than empirical facts.

‘Universal’ banks have steadily arisen over the past twenty years. They provide not only banking services on the high street, but also insurance services, pensions, corporate and investment banking services. This multiple product platform provided a competitive advantage over the traditional banking structure as it diversified income streams and allowed banks to increase overall profits by selling multiple products to a single customer.

However this comes with risks. Multiple asset classes have different risk profiles and the collapse in one area can lead to a chain reaction causing the entire bank to go under including better performing divisions. The near-collapse of Citigroup in the US is testimony to this multiple disequilibria theory.

Yet there is no evidence to suggest that universal banks are riskier than ‘narrow’ banks (whose services focus on a specific asset class such as retail or investment banking). All the toxic sub-prime mortgages were lent out by retail banks. Northern Rock, the first bank to go under in the UK, was a narrow bank focused on retail lending. Since 2007, there have been nearly 300 bank closures in the United States, a vast majority of which are narrow banks focused on retail lending or property finance.

Sean Garman: In defence of a national loan guarantee scheme

Sean Garman is a banker for a leading city firm and is in charge of policy and research communications for Conservative City Future. Here he seeks to rebut Andrew Lilico’s recent argument against the national loan guarantee scheme.

Britain is faced with the deepest economic crisis in sixty years. Profitable companies are going to the wall because banks will not allow them to borrow money, jobs are being lost and families are under stress. The National Loan Guarantee Scheme will insure loans to save well-performing companies which will save jobs and create financial security for British families.

Andrew Lilico has attacked the Conservative plan for reviving commercial lending as “terrible”. In his post, Andrew goes on to describe in vivid detail the problems that he sees with insuring business loans with the Government ultimately determining who gets loans and who does not.

This is wrong for many reasons.

Firstly, the key issue in the economy is how to get credit moving again. The credit crunch has lead to a hyper crunch after the collapse of Lehman and now we are in recession. The length and severity of this recession will depend on whether the banks resume normal lending. We must advocate effective policies to avoid a deeper recession and to attack the cause of the current problem.