Climate change could deliver a $4 trillion hit to the financial system

[Nak Khid]

A hit like this could lead to a domino effect on the U.S. economy
Property looses caused by in California foreshadow future problems as well as the potential for future increases in flooding (recall Sandy in NJ/NY)
hurricanes and other weather patterns

recall the housing crisis of 2007-2010

The United States subprime mortgage crisis was a nationwide financial crisis, occurring between 2007 and 2010, that contributed to the U.S. recession of December 2007 – June 2009. It was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies and foreclosures and the devaluation of housing-related securities. Declines in residential investment preceded the recession and were followed by reductions in household spending and then business investment. Spending reductions were more significant in areas with a combination of high household debt and larger housing price declines.

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https://www.cbsnews.com/news/climate-change-could-deliver-a-4-trillion-hit-to-the-financial-system/

Climate change could deliver a $4 trillion hit to the financial system
 

Climate change could deliver a $4 trillion hit to the financial system

By Irina Ivanova

April 5, 2019 / 4:07 PM / MoneyWatch

U.S. cities owe $3.8 trillion in debt that's increasingly threatened by extreme weather events and economic disruption driven by climate change, according to the investment giant BlackRock.

Seattle's economy will be least affected by climate change, while Miami and Houston stand to lose about 4 percent of their GDP.

Commercial real estate would also be hard-hit, which hurts not only corporations but the many others who invest in their properties.

Climate change is a problem of epic proportions. For BlackRock, the world's largest asset manager, it amounts to nearly $4 trillion. And Seattle will weather that damage better than Houston or New York, according to a report the financial company released this week.

The report, which looks at the physical risks of unchecked climate change, pinpoints the Gulf Coast, the Atlantic seaboard and Arizona as the places that will lose out the most in a "business as usual" scenario, in which policymakers do nothing to mitigate climate change.

While a handful of northern counties, clustered in the upper Midwest, could see a net gain under unchecked climate change due to longer agriculture seasons, the potential losses are much bigger than the gains. "Some 58% of U.S. metro areas would see likely GDP losses of up to 1% or more, with less than 1% [of metro areas] set to enjoy gains of similar magnitude," BlackRock estimated

Trickle-down effects from extreme weather

More worrying, per BlackRock, is how those losses could trickle down into the entire finance system. That's because cities -- which today generate the vast majority of the U.S.' economic growth -- fund many of their services by issuing municipal bonds.

U.S. cities currently have about $3.8 trillion in bonds outstanding, Federal Reserve data shows. These securities are owned by mutual funds and various institutional and individual investors. The returns those bonds generate rely on a city's economic expansion, which climate change can undermine in a number of ways.

Consider extreme-weather events, such as wildfires or hurricanes, which in 2017 did $300 billion worth of damage. The cost of cleaning up after these disasters can lead cities to accumulate more debt, which has harsh effects on bonds they issue. Severe natural disasters, like Hurricane Maria, can lead to population drain and dropping property values, further eroding a city's tax base and its ability to pay back bonds. Bonds issued by a specific project, like a water or power utility, could be hurt even more, since these utilities can be disproportionately harmed by floods, droughts or hurricanes.

No major cities benefit in this scenario, but some withstand it better than others. "Seattle, with its relatively temperate climate, shows the most resilience with little projected damage to GDP over time," BlackRock finds. On the other hand, the New York region is projected to lose the equivalent of 1 percent of its enormous GDP by the end of the century. Miami and Houston will each see damage equating to about 4 percent of GDP, the report said.

The silver lining is that "the projected losses are not set in stone. Larger, more diversified MSAs [metropolitan statistical areas] such as New York are in a better position to fund adaptation and mitigation projects," which would prevent the worst of climate-change damage down the line.

Corporations, too, stand to lose in this scenario, thanks to the sheer amount of real estate in storm-prone coastal regions. That hurts not only the corporations but the mortgages secured by that pricey real estate, which themselves are a fairly common financial investment. Just three cities -- New York, Houston and Miami -- make up one-fifth of the value of commercial mortgage-backed securities, the report finds.

If recent hurricanes offer any evidence, most of the buildings flooded in storms won't carry flood insurance, meaning even greater financial losses. Flooding isn't the only risk: Within 30 years, the chances of a typical commercial property getting hit by a Category 5 hurricane rises 275 percent, the report finds. "Bottom line: Climate-related risks are significant today -- and set to grow in the future."

First published on April 5, 2019 / 4:07 PM

[remember]

interesting topic. there is a flood in venice at the moment, the strongest in 50 years. it was just a matter of time but what was predicted since years. two people died. it will cost italy a lot of money. there was also a flood in october 2018. they can count on it every year now. the ongoing biennale also had to close.

May you live in interesting times

 

Edited November 13, 2019 by remember

[Nak Khid]

Related article  (again consider the subprime housing crisis of 2007-2010 a housing bubble which caused a big recession with nearly 9 million jobs lost during 2008 and 2009, roughly 6% of the workforce. The number of jobs did not return to the December 2007 pre-crisis peak until May 2014.U.S. household net worth declined by nearly $13 trillion (20%) from its Q2 2007 pre-crisis peak, recovering by Q4 2012.[14] U.S. housing prices fell nearly 30% on average and the U.S. stock market fell approximately 50% by early 2009, with stocks regaining their December 2007 level during September 2012. One estimate of lost output and income from the crisis comes to "at least 40% of 2007 gross domestic product". Europe also continued to struggle with its own economic crisis, with elevated unemployment and severe banking impairments estimated at €940 billion between 2008 and 2012.As of January 2018, U.S. bailout funds had been fully recovered by the government, when interest on loans is taken into consideration. A total of $626B was invested, loaned, or granted due to various bailout measures, while $390B had been returned to the Treasury. The Treasury had earned another $323B in interest on bailout loans, resulting in an $87B profit.[1cession.

 

 

Climate change could end mortgages as we know them

By Irina Ivanova

November 8, 2019 / 1

Climate change could punch a hole through the financial system by making 30-year home mortgages — the lifeblood of the American housing market — effectively unobtainable in entire regions across parts of the U.S. 

That's what the future could look like without policy to address climate change, according to the latest research from the Federal Reserve Bank of San Francisco. The bank is considering these and other risks on Friday in an unprecedented conference on the economics of climate change.

For the financial sector, adapting to climate change isn't just an issue of improving their market share. "It is a function of where there will be a market at all," wrote Jesse Keenan, a scholar who studies climate adaptation, in the Fed's introduction.

U.S. taxpayers are at risk for homes threatened by climate change

Climate change could deliver a $4 trillion hit to the financial system

California fire insurance premiums pricing out homeowners

No more mortgages?

The housing market doesn't yet factor in the risk of climate change, which is already affecting many areas of the U.S., including flood-prone coastal communities, agricultural regions and parts of the country vulnerable to wildfires. In California, for instance, 50,000 homeowners can't get property or casualty insurance because of the increased risk to their homes.

more here (but not much more)

https://www.cbsnews.com/news/climate-change-could-end-mortgages-as-we-know-them/