Sheldon Whitehouse Confronts Scott Bessent About Imminent Threat Of Climate Change

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During a Senate Finance Committee hearing, Sen. Sheldon Whitehouse (D-RI) spoke to Treasury Secretary Scott Bessent about climate change.

Transcript

00:00Thank you, Senator Whitehouse.

00:03Thanks very much, Chairman.

00:04Mr. Secretary, thank you for being here.

00:07I don't know if you remember, but when we first met, I gave your staff a fat binder

00:12full of economic warnings of what was going to take place if climate change weren't mitigated.

00:21And you indicated that you had actually read the Economist magazine cover article, which

00:30at least in its current version now says, as its headline, homeowners face a 25 trillion

00:37dollar bill from climate change.

00:40To be clear, that's a global effect, not just in the U.S.

00:47Since then, a number of other things have happened, starting on the day we met when the International

00:55Financial Stability Board put out a warning report to the world's banking system that

01:04this climate change problem was coming at them, both in terms of reduced mortgage revenues,

01:15if the mortgage markets collapse when insurance is no longer available due to climate risk,

01:20and in terms of loan-to-value ratios going south when home values fall because the property

01:29is no longer mortgageable because it's no longer insurable.

01:34So that warning has come out.

01:37And I would commend it to you and your team to have an honest look at it.

01:44Then First Street, which studies flood risk, came out with a report suggesting that we had

01:54a $1.4 trillion hit to U.S. home values looming.

02:01Again, as a result of this same cascade that was originally, I think, at least best originally

02:08presented by the chief economist for Freddie Mac, who said when climate risk gets uninsurable,

02:17then mortgages become unavailable and property values crash.

02:24And his prediction was that would cascade into a 2008-style recession.

02:30That original warning was based on coastal property value risk.

02:34Now of course we have wildfire-adjacent property value risk that could be a similar catalyst.

02:42So I would also urge your team to look at that First Street report and evaluate it.

02:50So since then, Chairman Powell of the Federal Reserve came to the Banking Committee and testified

02:58that 10 to 15 years there would be whole regions of the country in which mortgages were no longer

03:04available because of this insurance-slash-mortgage problem.

03:10Allianz, as I think you probably know, is I think the biggest insurer in the world, trillion-dollar

03:17company with enormous stakes in getting stuff right in the insurance world.

03:23And one of their board members wrote an article that I would also commend to you and your team,

03:31highlighting the danger to the very insurist model from climate risk, highlighting the danger

03:37to the real estate model from failure in the insurance model, and also predicting damage

03:43in the financial system, both from the cascade of insurance to mortgage to values to the financial

03:49system, but also because a great number of transactions in the financial system are held

03:54together by an insurance component that would no longer be available, and I would commend that

04:00piece to your attention.

04:03And most recently, Fitch has just warned of danger to mortgage-backed bonds and municipal

04:12bonds coming from this climate risk where the mortgages lose.

04:19We saw before 2008 what happens when mortgages lose their value because the underlying property

04:24isn't worth it.

04:25Then it was because they'd faked the value of the underlying property.

04:28Now it's because natural causes are knocking down the value of those properties, irrecoverably

04:37in the case of, for instance, sea level rise.

04:41So you know, I just am continuing to make this warning.

04:46I think these are really serious.

04:49I come from a coastal state.

04:50When you have storm warnings, you should pay attention.

04:53When there's storm clouds on the horizon, you should pay attention.

04:57So please, take a look at those different articles that I've just mentioned.

05:02Your team is there to take notes.

05:04You've got the tape of this if you're interested.

05:07And have your federal insurance office and the treasury insurance office take a look at

05:15this.

05:16And if you think that this is all wrong, if you think that climate change isn't real

05:21or is a hoax, if you think that it's not having an effect in insurance markets, if you

05:25think that that doesn't affect mortgage markets or that the unavailability of a mortgage doesn't

05:29damage the value of a middle class home or that regional hits to real estate values aren't

05:36going to cause recession, then I'd like to have that argument, that conversation with

05:42you.

05:43But if you agree with me that those things are all both true and predicted, then I think

05:47we have to prepare and I would urge you to prepare.

05:55Thank you, Senator.

05:56We likely agree on the direction, maybe not the magnitude.

06:01And I also believe that resiliency must be a component also.

06:06And we should move toward greater resiliency.

06:08If you don't mind, when your team have had a look at those five articles that I mentioned

06:16and you've got somebody who's on point on this issue, I'd like to have the opportunity

06:19to have a conversation with them.

06:21I'd be happy to.

06:22And we have frequent interactions with the 50 state insurance regulators as part of the

06:28Financial Stability Oversight Council.

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