h/t TeaPartyGeazer; According to David Burt, who is famous for profiting from the subprime crash in 2008, investors are underestimating the impact climate change will have on the housing market.
A ‘Big Short’ Investor’s New Bet: Climate Change Will Bust the Housing Market
David Burt was one of the few who predicted the 2008 financial crisis. He’s gambling that history is going to repeat itself soon.
By Geoff Dembicki
Nov 1 2019, 11:25pm
In 2007, almost no one would admit what became obvious in hindsight: The housing market was on the brink of collapse and would take a good chunk of the U.S. economy along with it. Lenders were getting rich, giving home loans to people who couldn’t afford them, investment banks were making a killing by combining those shaky loans into securities, ratings agencies cashed in by certifying those securities as safe and millions of ordinary people got screwed when the whole thing came crashing down.
But David Burt saw it coming. The investor was a consultant at Cornwall Capital, the firm that shorted the subprime mortgage market and made $80 million as some of Wall Street’s biggest firms imploded around it. It was such a spectacular, farsighted bet against the conventional wisdom surrounding the housing market boom that Cornwall was profiled in Michael Lewis’s book The Big Short, and one of Burt’s colleagues was played by Brad Pitt in the movie adaptation. The thing, though, is that many of the risk factors leading up to the crash were fairly easy to spot if you weren’t earning massive profits dependent on ignoring them.
Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by climate change denial.
To understand the mechanics of this threat it helps to visualize the market for coastal real estate as a brand new condo tower on the beach. The foundations for this tower are built upon maps drawn by the federal government that seriously downplay the likelihood of sea-level rise and floods. The lower floors are filled with homeowners paying off mortgages on homes that could be chronically flooded within the next few decades. The penthouse is occupied by banks and other investors turning those mortgages into ever more complex investments. Though it’s hard to predict a specific event that knocks this tower to the ground—perhaps it could be a devastating $1 trillion Florida hurricane, or a stampede to the exits by investors once denial of climate dangers turns to fear—it’s clear to anyone paying attention that the entire structure is teetering in the ocean wind.
There is no doubt many unwise coastal or floodplain realestate developments are vulnerable to extreme weather. But is this really a climate change issue?
If the sea level was to abruptly rise by several metres, a lot of beach side properties, such as the property recently purchased by the Obamas, would be far more vulnerable to flooding. But how likely is a sudden substantial rise in sea level? The current rate of sea level rise, a few mm sea level rise per year, is unlikely to threaten much. Any property which is so exposed to the sea that a few mm per year of sea level rise could make a difference is a disaster waiting to happen, even without changes in sea level.
via Watts Up With That?
November 4, 2019 at 04:28PM