World’s Biggest Investors Risk Another More Severe Global Finanical Crisis

Sunday, May 8, 2016
By Paul Martin

By John Hewson
TheEpochTimes.com
May 8, 2016

Financial markets are again misunderstanding or ignoring risk, and are certainly underpricing it, both as individual institutions and systemically. The risk is another global financial crisis (GFC).

The GFC of 2008 had its roots in sub-prime housing loans in the United States—simply a punt on U.S. house prices continuing to rise—on which financial institutions built a mountain of debt instruments (CDOs, CLOs, credit default swaps, and the like) that were poorly understood, and certainly over-rated, and underpriced.

When sub-prime loans hit the wall, the mountain collapsed, many institutions failed, the whole global financial system was pushed to the brink of collapse, the global economy to a recession, and governments and policy authorities found themselves mostly rudderless, in uncharted waters. They are still struggling with an effective global response.

This time the risk is climate exposed investments, a risk that Hank Paulson, secretary of the U.S. Treasury at the time of the last GFC, has said dwarfs the risks run at the time of the sub-prime crisis. Bank of England Governor Mark Carney has now talked openly of potential financial instability. He has driven the Financial Stability Board which he chairs to investigate.

The risk is that either extreme climate events, and/or government responses to the challenge of climate change, and/or technology—more likely a combination of all three—precipitate a collapse of asset values, stranding these assets in the portfolios of the world’s major financial institutions. We cannot even estimate the range of financial instruments that might be affected.

The Rest…HERE

Leave a Reply

Join the revolution in 2018. Revolution Radio is 100% volunteer ran. Any contributions are greatly appreciated. God bless!

Follow us on Twitter