When the stock markets took a sudden downward turn three weeks ago, the explanation was Asian contagion: the 9 per cent fall in the Shanghai stock market triggered a bout of global self-doubt. The sell-off made little obvious sense. Shanghai’s shares are mostly off-limits to international buyers and the Chinese stock exchange’s connection to global markets is limited.

The worldwide fall in stock prices and the wild ride on Wall Street yesterday was blamed on the carnage in American sub-prime lending — worryingly, a much more credible, connected scapegoat. The sheer scale of the sub-prime problem, its linkages to the heart of the financial system, the opacity of what is really going on and the knock-on effects on consumers in the world’s most important economy all point to this being a serious issue.

On numbers alone US sub-prime lending has to be taken seriously. About $1,200 billion (£620 billion) has been extended to the poor or credit-tarnished of America. Delinquency rates on sub-prime adjustable rate mortgages are running at 14.4 per cent. Sub-prime is no longer a minority sport: one in five mortgages in the US last year was to a sub-prime borrower.

The problem will, therefore, be felt far and wide. First, on the housing market. With US house prices down by 9 per cent and falling, a lot of borrowers are already in negative equity. Lehman Brothers issued a report on Monday forecasting $225 billion in US mortgage defaults in 2007-08. This is probably a conservative estimate. This will depress the housing market the US, where housing has a knock-on effect on confidence and, given the size of the construction industry, on growth.

Second, the health of the financial sector. Mortgage originators are already folding by the dozen. The more serious question is the impact still to be felt on banks that lent originators money. Further down the chain are the hedge funds, pension funds and insurance companies that bought securitised mortgages from them. Most of these investments are excellent quality and well secured. A minority is toxic waste. But no one knows exactly where it lurks. And that makes the markets nervous.

Third, consumer spending. After years of easy money and loose credit, the average American suddenly finds money is tight. It is not just that interest rates are higher, but also that the previously plentiful supplies of fresh credit for higher risk borrowers have dried up. That may quickly feed through into lower consumer spending, which could slow US and global growth. Shanghai was a nasty surprise; sub-prime will be a longer, nastier saga.

A rest place for dormant funds

Imagine if the lost and found department at Victoria station decided that it was fed up providing storage to countless unclaimed umbrellas, coats and bags and decided to bundle them together, get a government subsidy and open a secondhand department store on Oxford Street catering to the poorer shopper.

Of course, no-one would suggest anything as preposterous: the long-lost brollies and mackintoshes do not belong to Victoria station, but to their original owners; the government might see little reason to back the opening of another store on Britain’s crowded high street; and the retailers already do — and certainly should — serve the low-income market.

But the Commission on Unclaimed Assets is suggesting something similar, and raising concerns. At the instigation of the Chancellor, Sir Ronald Cohen and his colleagues have been considering what to do with the estimated £400 million lying dormant in bank accounts in Britain. Their proposal is to establish a Social Investment Bank backed with £250 million in capital to provide financial advice, equity investment and loans to social entrepreneurs and charities.

On the face of it, the mysteries of the unclaimed assets of the past are being compounded by an uncertain venture into the future.

What happens if someone returns to their bank after ten years and claims the assets that have long lain dormant? Why create a new bank when the existing banks should be doing a better job of serving the burgeoning “third sector” of social enterprises? Isn’t the Government effectively subsidising a superfluous, not-for-profit financial institution that, itself, offers soft terms which will give them little incentive to embrace market disciplines? And aren’t there better uses for these funds? Frank Field, MP, suggests the money should be given to the 125,000 victims of the collapse of occupational pension funds.

But the fact that it is controversial does not mean it is wrong. Indeed, the Commission has answers for these questions. The banks have, so far, been lackadaisical in finding the owners of these assets. They won’t be now. Ireland’s experience of this process shows that when pressed the banks can find owners of a third of the assets. A bank customer can always come back and reclaim his or her money: when Rip van Winkle wakes up, the long forgotten account still belongs to him. The banks have had a chance, on a voluntary basis, to embrace the social enterprise sector and have responded, patchily.

Sir Ronald’s fundamental argument is that social investment is a new sector of the economy, essential to the cohesion of society and the success of the community in an era of ever more straitened budgets. The “third sector” needs to be properly banked. The SIB may be an intermediate step, but one worth taking.

Step on it!

Next month, it will be two years since MG Rover collapsed. And we are still no nearer to finding out how much the controversial Phoenix Four directors were to blame. Investigators commissioned by the Department of Trade and Industry are still leafing through the books and talking to those involved, whose memories must be dimming a little by now. The finest QCs and forensic accountants are not rushing. Neither are they cheap. They have cost the taxpayer £8 million so far and the DTI has no idea when they will conclude.

Thoroughness should generally be applauded but investigations should also be prompt and in proportion to their subject. With the debate raging over private equity’s lack of accountability, Alistair Darling, the Trade and Industry Secretary, should set a time for the inquiry to finish and be published. If the investigation goes on much longer there may be the need for an inquiry into why it cost so much and why it was allowed to drag on so long. james.harding@thetimes.co.uk

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive