G-20 World Summit: No Expectations

[Free Digital Universe]

I dont expect much from the G-20 meeting this week, but if I had my wish, the leaders of the worlds 20 top economies would commit themselves to a new standard of accounting call it Market to Mother Nature accounting. Why?

Because its now obvious that the reason were experiencing a simultaneous meltdown in the financial system and the climate system is because we have been mispricing risk in both arenas producing a huge excess of both toxic assets and toxic air that now threatens the stability of the whole planet.

Just as A.I.G. sold insurance derivatives at prices that did not reflect the real costs and the real risks of massive defaults (for which we the taxpayers ended up paying the difference), oil companies, coal companies and electric utilities today are selling energy products at prices that do not reflect the real costs to the environment and real risks of disruptive climate change (so future taxpayers will end up paying the difference).

Whenever products are mispriced and do not reflect the real costs and risks associated with their usage, people go to excess. And that is exactly what happened in the financial marketplace and in the energy/environmental marketplace during the credit bubble. Our biggest financial-services companies, some of which came to be seen as too big to fail, engaged in complex financial trading schemes that did not adequately price in the costs and risks of a market reversal. A.I.G., for instance, was selling insurance for all kinds of financial instruments and did not have anywhere near adequate reserves to cover claims if things went badly wrong, as they did. And our biggest energy companies, utilities and auto companies became dependent on cheap hydrocarbons that spin off climate-changing greenhouse gases, and we clearly have not forced them, through a carbon tax, to price in the true risks and costs to society from these climate-changing fuels.

Just when will we wake up?