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