James Murray

Oh dear, that was not a good day. And it's not over yet.

Suddenly, all those pessimists drawing parallels with the 1920s look a bit more like realists. As share prices slide and thousands of workers at Lehman Brothers clear their desks, the small cabal of bankers who got us into this mess are finally awaking from their year-long period of denial and beginning to realise the true scale of the mistakes they have made.

Even the best-case scenario – a short, sharp recession where the impact of the problems in the financial and housing sectors on the "real economy" are kept to a minimum, and falling oil prices and the strength of emerging economies in Asia and the Middle East lead us to recovery within two year – will be pretty traumatic. The worst-case scenario hardly bears thinking about.

It is tempting to rail against the iniquity of it all and rage at the reckless bankers and spineless regulators who allowed absurd risks to be taken in pursuit of absurd bonuses based on the absurd assumption that the good times would keep rolling. It is a natural reaction, particularly given that the entire globally economy will be made to pay for the mistakes of such a small group of companies.

But such anger is entirely impotent and when you look at the reality of the current situation there are only two questions that matter: how bad is the economy going to get and how do we get out of the financial mire we have found ourselves in?

The answers to both these questions have major repercussions for the green business movement – not all of them good, but thankfully not all bad either.

In terms of how bad things will get, the outlook for the next year is now worryingly bleak for both green businesses and the economy as a whole.

The CBI's prediction of a "shallow recession" seems overly optimistic and until a modicum of confidence returns to the banking sector, any attempt to reinvigorate the economy will be like building on shifting sands. Attempts by US and European governments to throw money at the problem simply cannot continue, as the Federal Reserve's failure to bail out Lehman Brothers proves. Consequently, the predictions that more investment banks will collapse have an air of inevitability. We are undoubtedly in for a bumpy ride.

For green businesses and environmentalists it is blinkered to argue, as some have done, that a deep global recession is a good thing as it will help deliver a cut in carbon emissions and focus a greater degree of managerial attention on energy bills. Both of these facts are true, but these benefits are more than outweighed by the likely downside of weak investor confidence and the extent to which politicians and business leaders will be forced to focus at least some of the attention that had been lavished on green initiatives on short-term economic fire fighting.

The impact on cleantech investment, meanwhile, remains something of an unknown and will depend entirely on how investors now regard this still adolescent sector. As yesterday's rush into gold proves, traders are looking for a safe haven and low risk sectors are set to benefit, a fact that should count against a cleantech sector where a proportion of the start-ups that have emerged in recent years will inevitably fail. This was already evident yesterday as cleantech firms tended to see more knocked off their share prices than the market average.

It is also still unclear how much of an appetite the big financial institutions will have for cleantech when their entire focus is on cleaning up the mess they have made. I'm guessing, for example, that Bank of America has plenty of other problems to sort out at the newly acquired Merrill Lynch before it decides what to do with its recently declared interest in deforestation credits and green consultancy.

Furthermore, with credit conditions tighter than the proverbial Mermaid's brassiere, big cleantech infrastructure projects such as wind and solar farms will find it ever harder to attract the loans they need.

And yet, despite everything, the fundamentals for many cleantech firms remain pretty good. Their prospects are tied in large part to government legislation that is simply not going to go away and many of the technologies such as wind, solar and energy efficiency improvements are now largely proven. There are still risks, but they are much lower than the risks now attached to the complex derivatives and financial instruments that put paid to Lehman Brothers and Merrill Lynch.

This slightly optimistic outlook becomes fractionally better when you begin to assess how businesses and governments might seek to navigate their way out of the downturn.

If the recession proves as deep as some fear, then surely the best model we have for a return to stability and growth is that of the Great Depression and Roosevelt's New Deal.

Given that the current problems have been caused almost entirely by financial recklessness and the refusal of governments to keep a close eye on the bankers who spent so long evangelising the concept of light touch regulation, the case for a tightening of legislation and a general strengthening of government has never been stronger.

Were a Roosevelt-style package of financial regulation to be delivered, it is highly likely that the low carbon economy would be one of the big winners as progressive legislators seize the opportunity to accelerate the environmental measures they are already embracing. If new rules on the reporting of financial risk are to be introduced – and even some of the most laissez faire capitalists are now arguing that such a package of measures is required – then surely it is a perfect time to also introduce tighter rules on environmental reporting.

Equally, were any political leader looking to enact a New Deal-style boost in infrastructure spending as part of an attempt to tackle unemployment and prop up ailing economies, then low carbon projects are the only horse in the running. Almost everyone now accepts large-scale low carbon projects need to happen and a downturn might just provide the economic and philosophical context to further justify their early development.

We can see this thinking already beginning to crystallise in new initiatives such as the UK government's plans for an expansion of its home insulation initiative, as well as the recent claims from both politicians and environmental groups that green manufacturing and infrastructure can provide the best means of tackling rising unemployment.

Sadly, there are no guarantees any of this will happen – particularly when you consider that the man who according to current polls will be the next US president is widely known to find economics supremely boring. Governments will have to be far bolder and braver than they have been at any point in the past few decades if they are to deliver a Green New Deal capable of making much of a difference to either carbon emissions or the global economy.

Moreover, even if they do grasp the nettle and emulate Roosevelt, it is far too late to help anyone much in the short term.

It will not offer much succour this morning as the markets face up to another uncertain day and speculation rages over which blue chip financial name will be the next to go under, but it is possible to find a silver lining amid the current gloom. You have to really want to see it and it could take years to materialise, but it is there.