The current difficulties in the financial markets is largely attibuted to a meltdown in the sub-prime morgage lending market in the U.S. Many of us have our theories about the root cause of this meltdown - I will add my own 2 cents worth.

Part of the reason for this meltdown is the way in which wealth is created in a modern ecomony. The pre-industrial era was a time when ownership of "natural capital" largely determined your level of wealth. With industrialization came the emergence "financial capital" as the driver of wealth. Much of that "financial capital" was squandered foolishly by banks and insurance companies just as we are now foolishly squandering much of our "natural capital" (e.g., reduced air quality, water quality, soil quality, ecosystem diversity, wildlife diversity and abundance, failing infrastructure, etc...).

The meltdown is not just happening to our financial capital but also our natural capital systems. The scale of the costs involved in fixing our current natural capital problems will ultimately dwarf the cost of subsidizing the currently failing financial capital industry. It is estimated that the world now needs to collectively invest 650 billion dollars every year to mitigate the current and anticipated effects of global climate change (1 percent of world GDP).

It is politically very tricky to try to assign costs to our current natural capital expenditures. Hurricanes, floods, permafrost thawing, rising sea levels, respitory health problems, and other modern afflictions have many causes and it is trickly to know how much blame to assign to our failure to mitigate the effects on our natural capital.

Nevertheless, the 2006 Stern Review concludes that "inaction on climate change could damplen global economic output by anywhere from 5 to 20 percent every year over the course of this century".

There is some good news, however. In this turmoil, financial capital is being increasingly called upon to finance the conservation and restoration of our natural capital:

1. Citigroup: 50 billion to address climate change over the next decade.
2. Goldman Sachs: 1.5 billion in renewable energy in 2006.
3. Global investment in new energy at $71 billoon in 2006, up 43 percent from previous year.
4. The "cleantech" sector is third largest investment sector for venture capital in U.S.

The other good news is that the shift to a sustainable economy is not likely to happen without some uncomfortable market corrections such as we are seeing now. The financial capital system that led to the subprime morgage mess needs to re-examine its foundations. The time has come, I think, for financial capital systems to invest intelligently in U.S. natural capital in order to achieve a sustainable U.S. economy.