Edited by Christopher J. Green, Eric J. Pentecost and Tom Weyman-Jones
Chapter 15: Minimizing Collateral Damage: Options for Financing Public–Private Partnerships in the Wake of the Financial Crisis
15. Minimizing collateral damage: options for financing public-private partnerships in the wake of the financial crisis Darrin Grimsey and Mervyn K. Lewis1 INTRODUCTION Writing in 2006, a former member of the Board of Governors of the Federal Reserve System, Frederic Mishkin, described the financial system in the following terms: the financial system [is] the brain of the economy . . . It acts as a coordinating mechanism that allocates capital, the lifeblood of economic activity, to its most productive uses by business and households. If capital goes to the wrong uses or does not flow at all, the economy will operate inefficiently, and ultimately economic growth will be low.2 The analogy seems an apt one, for the international financial system in 2008 experienced what may be seen as a stroke or brain seizure, although other descriptions are ‘a spasm in the credit system [that] resembled a slow but ultimately devastating chain reaction’ (Ferguson, 2009, pp. 9–10) or simply ‘a heart attack’ (Goodhart, 2009, p. 1). Inevitably, every financial shock produces casualties. While the most visible impact of this crisis is its devastating impact on the banks, the collateral damage to the rest of the system illustrates Mishkin’s warning of what happens when ‘capital does not flow at all’. It is in this context that this chapter examines the impact of the global financial crisis on project financing in bond, equity and banking markets, and the consequences that follow for the raising of private finance for public-private partnerships (PPPs). In response to these...
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