One more big reason to fear a Democrat-controlled U. S. Senate is spelled out in a new report from the Senate Democrats’ Special Committee on the Climate Crisis. The report essentially lays out how the Federal Reserve and several other regulators will add climate change risk management to their portfolios. Just what we need after over ten years of mission creep that has pushed the Fed far beyond anything contemplated by their charter in terms of micromanagement of the credit markets. The key to the new strategy is to add climate change as a risk to the financial system because, as the report states, “Congress has not advanced any comprehensive climate policies in the last decade, the market has not priced in the possibility of significant federal action”. So they want to install a warning system about the costs of government climate policy compliance.
Basically this would begin with using capital and liquidity standards and annual stress tests to force banks and other asset managers to price in these political risks, seemingly whether or not they can be accurately calculated. And, even more dangerously, the report also says that “the Fed must account for climate risks in monetary policy: its work to buffer the economy from unexpected shocks and achieve maximum employment and price stability”. Presumably, this might involve direct purchases of public and private instruments like bonds that finance climate change projects.
Wow. The Fed has been attempting to model and predict price inflation and unemployment for decades, with mixed success at best. Now Democrats will be proposing to add projected climate change risk factors to the Fed’s regulatory portfolio? Treasury Secretary-designate Janet Yellen is big on climate change regulation, so she might even be supportive of such nonsense.
The principal job of a capitalist system is the pricing of risk in a free market. In a letter to the editor on this issue, former counsel to the chairman of the CFTC Robert Zwirb had this to say: “It’s bad enough that such regulators want to get into an area that they really know nothing about. It’s worse that they have so little faith in the ability of the markets they oversee to address the risks they profess to be concerned about.”