Markets must prepare for climate change shock

A shocking report by PRI reveals that the financial market is very likely to incur in a new mortgage default crisis because of the climate change. In fact, the short sightedness of policy makers regarding climate change is increasing the likelihood of a market crisis.

For instance, US homeowners pay on average 30-year mortgages to buy proprieties, but the insurance price is reset annually. Consequently, if natural disasters continue to grow in terms of frequency and intensity, insurance price will exponentially increase and a US mortgage default will happen.

According to McKinsey analyst Hans Helbekkmo, a chaos similar to the 2007 subprime crisis could happen in the next 10 to 20 years.

As Gillian Tett rightly points out in the Financial Times, the problem is that ordinary investors have very little understanding of the full range of implications of climate change. Moreover, there is a common-misguided belief that given the long-term nature of the problem governments will create a safety net for mortgager.

Overall, the nature of the problem is one thing only: negligence.

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