The New Yorker Radio Hour - The Financial Crash and the Climate Crisis

Episode Date: November 9, 2018

Ten years after the financial crash of 2008, the economy is humming along, with steady growth and rising employment. Yet that crisis continues to shape our world, particularly through the rise of right-wing populism and the ever-worsening climate crisis.  Jill Lepore, Adam Davidson, and George Packer talk with David Remnick about how we got here. Two Florida real-estate experts explain why short-term thinking rules the day, and the former Treasury Secretary Hank Paulson explains why he has embraced the idea of imposing a carbon tax.      New Yorker Radio Hour listeners, we want to hear from you.  We have a few questions about the show and how you listen to it. The survey takes about twenty minutes, and your feedback will help us make our podcast better.  Take the survey here.

From One World Trade Center in Manhattan, this is The New Yorker Radio Hour, a co-production of the New Yorker and WNYC Studios. Welcome to The New Yorker Radio Hour. I'm David Remnick. I'm going to ask you to do something right now. Cast your mind back 10 years ago to the fall of 2008. The campaign debates between John McCain and Barack Obama are going on. And in the headlines, it seemed that life in America, was hanging in the balance. We saw financial market turmoil reached a new level last week and spilled over into the rest of the economy.

We must now take further decisive action to fundamentally and comprehensively... I had covered the Iraq War. I spent a year in Baghdad. I would say in many ways that week felt scarier. And then I'd go out and everyone's just going shopping, walking down the street.

Nobody has any idea that their fundamental way of life is really hanging by a thread. Adam Davidson is now a staff writer at The New Yorker, but during the housing crisis and the market crash of 2008, he was the co-host of NPR show, Planet Money. He recently revisited that critical, terrifying, decisive moment with Hank Paulson. Paulson then was Treasury Secretary under George Bush. For you and I, we both, we lived in that crisis second by second,

and it's seared in our brains, I think. You know, that week of September 15th, you could, you know, what was happening Thursday at three? And I could probably tell you. And as everything was collapsing, it was Paulson's job, basically, to save the world. Yeah, yeah, I describe it sometimes the week that Lehman went down and we had to step in and prevent a very disastrous failure of AIG from happening. And if we'd had one more institution to go down, we would have been looking, you know, at it. into something I think that could have rivaled or exceeded the Great Depression, you know, I didn't have time to be afraid during the day,

but at night when I would wake up, I was looking into the abyss because the system was so concentrated that if the system had collapsed, it was hard to figure out how you'd ever put it back together again. Now, if you look at the business pages of the newspaper, you'd think that the crash of 2008 was, I don't know, the Peloponnesian War, ancient history. Economic growth has been strong for years, and we've been adding an impressive number of jobs by anyone's estimation, but 2008 still shapes our world right now in the most profound ways. And in two ways specifically, one is the rise of right-wing populism that brought us Donald Trump,

and the other which might surprise you a little more is the melting ice caps in the hotter planet, the problem of climate change. We're going to spend this hour exploring how that crash is affecting our lives and how it will continue to affect our lives for a very long time to come. Not long ago, Hank Paulson wrote, looking back at the dark days of the financial crisis in 2008,

it's easy to see the similarities between the financial crisis and the climate challenge that we now face. In other words, Paulson sees a profound connection between the markets and climate policies. And after leaving government, he founded a think tank to promote sustainability. Here again is Hank Paulson,

talking with Adam Davidson. Can you walk me through why you see so many parallels between the financial crisis of 2007-2008 and what's going on with our climate? First of all, I think climate change really poses a huge environmental risk, of course, a huge risk to our ecosystem, the way we live and work. But ultimately, there are big economic risk, very big economic risk. So that's number one.

Number two, when you look at the trigger, it's debt in the case of the financial crisis, and it is carbon dioxide, which is in the atmosphere and is growing all the time, that is going to be the trigger for the climate change risk. They're both created by flawed government policies. Both of these risks tend to hit the most vulnerable, the hardest. They place the biggest burden on those with lower incomes, and each of these economic disasters also hit the government hard in terms of fiscal costs. and it's ultimately born by the taxpayer.

So it's well known that any kind of financial market can have a tendency towards what the great economist, Ragaram Rajan at University of Chicago, former central bank head in India, calls pre-payment for risk, that you can take big risks, reap the rewards today and pay the cost in some disqualification. uncertain future. And to me, that is a way to think about this, that sure, I know in some vague way there might be a cost to pay down the road, but boy, it sure is fun today. Yes. Congress deals best. Government deals best when there's an immediate crisis. They can see it. So they deal better with short-term rather than long-term events and better if it's national as opposed to whether

it's global or international. That's what makes this climate risk so different from the one we suffered and so much more perverse. When there's a financial crisis, as bad as it is, the government can come in again and clean it up. Get rid of the bad debt, right? Carbon dioxide, it's up there. It's essentially up there forever. It's cumulative. And so it doesn't help and immediately, it slowly strangles you.

But I really need to point out, we know that there's going to be sea rise. We know there's going to be more storms. We know there are going to be these climate events and these droughts and these forest fires. You don't know when they're going to hit or where they're going to hit, but they are going to hit. And so here it is just extremely important that we take the steps we need to take to adapt and make our economy more resilient. protect our economic security. Now, Adam, here you have Paulson comparing the debt bubble to the accumulation of carbon

dioxide in the environment. Is that a stretch? Is that a good metaphor? I was surprised when I first read about Paulson's comparison. And then as I thought about it, I thought, well, yeah, there are some very clear similarities. Very important differences, too, which we can get to. But there is this well-documented in the economic literature, psychological literature, this well-documented human pattern of grabbing a benefit today and ignoring or underplaying the great risks down the road. And much like our financial system, our environment really is a product, especially in a modern global industrial economy. it is a product of a whole lot of individual choices and a whole lot of government choices often made by politicians who themselves have incentives to take advantage of short-term benefits, even if it means long-term costs. And going back to the great game theorist Thomas Schelling, Nobel Prize winning game theorist and others, this is a very tough problem to solve. It's very hard to get a large group of people who are having a great time today,

even if every one of those people knows that there's a very good chance that tomorrow or 10 years from now, there will be a huge bill to pay. And having a great time in this case, the comparison is between having a great time spewing carbon monoxide into the air and flying and riding around in cars and using our air conditioners and at the same time buying houses on the chief. Exactly. I'm planning a trip with my family to Costa Rica. You know, things that feel like good things. certain things I should be ashamed of. I'm not profligate. But collectively, they do make us profligate. Now, you asked Paulson about risk and the idea of getting paid in advance for risk that might come due later. Is that what the financial markets are supposed to do by nature?

So the thing you want is a very strong but solid regulator. You want financial markets that are properly regulated for exactly these reasons. We know that markets can tend towards instability, towards concentration of risk. And, you know, to put it mildly, that was not what the SEC and other regulators were doing leading up to the housing bubble. And it's not what they're doing right now. So one of the most obvious ways we can see this all coming together is to focus on South Florida. South Florida was an epicenter of the foreclosure crisis. And one of the first places in the country that will go underwater as the sea level continues to rise. So here we see financial crisis and environmental crisis coming together. And the idea of South Florida going underwater is not an if, it's more of a

when, I hate to say. So we sent the radio hours, Stephen Valentino, to Miami. So I went to Miami, and I wound up in this neighborhood called Brickle, which is sort of adjacent to downtown Miami and right on Biscayne Bay. So you have Biscayne Bay with this beautiful, bluish, green water. So I went to water, facing Miami Beach, facing the port. There are enormous luxury condo buildings on every block. If you look closely at each of the buildings, you can sort of pick out which real estate boom they were constructed in. So like this Yakh City, I don't know the story behind that building, but my guess would be that was probably built two booms ago. My tour guide in Brickle was Tom Hudson, who hosts a radio show called The Sunshine Economy on WLRN.

We're coming up on the jade here. Yeah. Can you just describe sort of what it looks like? White building, lots of glass. It's kind of these sweeping balconies. This building was built in the last few years of the last housing boom in 2004, 2005. and condominiums here were selling for $700, $800, $900, $900, $900, $1 million. Within two years of that high watermark, you saw several dozen condominiums in this building

fall into foreclosure or short sale status. And very soon you saw those same condominiums that had been selling for a million dollars in 2005, in the summer of 2008, in the fall of 2008, we're selling for half that price. So you use the phrase high watermark to talk about, you know, the last real estate boom here. But isn't this building also facing another sort of eminent high watermark from climate change? Absolutely, it is. There's Irma video in September of 2017 when Irma came in, where this entire space here is just flowing with water.

gets up to about, I'm guessing, about maybe a foot and a half over where we're standing right now. So in the street, it's probably two, two and a half feet deep. They built it up to create a high spot here right on the bay so that the building itself can remain dry from those storm surges, but you're going to have to get a canoe or a kayak in order to have your valet parking. Brickle is a place where we're already starting to see the realities of climate change. Sea levels are rising. Places like Miami are experiencing stronger storms and hurricanes.

There are parts of Miami where water is sort of creeping up just on high tide days into the streets. And yet, as I'm standing here talking to Tom, there are cranes everywhere. Despite all of these realities of climate change, Brickle is experiencing tremendous growth. When you walk around Brickle, there's sort of this clanging machine noise that sort of follows you as you walk around the neighborhood because there is just so much stuff going on.

I mean, it is one of the fastest growing neighborhoods in Miami. Climate change and the threat of sea level rise, I have not seen any evidence that it is affecting property values in any real substantial. financial way. I think among the reasons why that is, is the length of time that people are staying in their homes is less, you know, five to seven years on average before they sell. So you're operating ultimately under the greater fool theory. There's somebody who's more of a fool than I

that'll pay a little bit more for this. But isn't the greater fool theory what caused the housing crisis? It certainly is part of it, yeah. Right? Certainly is part of it, yeah, until you're the last fool. Right. In which case, then you truly are. Yeah. Tom introduced me to this guy Victor Roldan, who works in risk management for this company RMS. Hey, how are you? Stephen. Nice to meet you. Well, good. And what RMS does is they tell insurance companies whether or not something is a good bet.

And Victor is particularly interested in Brickle because, you know, there's this looming threat of climate change and there's all this construction happening here. And as it turns out, he lives just up the street. That's my building right there. Okay, so just up the street there? Yeah, yeah. I actually bought this place during the financial collapse. Yes. Yes. It was hard to find a bank, so you needed to put a lot of money down,

so I had put all my savings to it, and I bought very cheap in a very beautiful place. Yes. So how did you feel seeing all of that water come in from your living room window? Well, yeah. The first, when you see that, it's quite impressive. and then you start analyzing, making assessment, all right? So we're in the business of transference risk. So we help companies how to transfer the risk.

And that's what's all about. You know, the builder here built this, and then you make some money, transfer the risk to the owners. Now we're trying to transfer the risk to an insurance company. That's perhaps why you don't see. like a major impact on this. Nobody's really worried because the risk is so distributed against many companies around the world. I mean, this idea of transfer of risk, wasn't that sort of something that happened during

the housing crisis in? Yeah, very similar. Right? This idea that like, oh, we can write these mortgages and then we'll package them and sell them off to someone else. Yes. So what lessons do you draw from that in sort of applying? Well, so this is going to be a point where CILA was so high that the insurance companies are going to say,

I'm not going to protect the mortgage. And then the owners like me, we have to go and find who is going to protect us. You know, at some point I say, okay, I will sell my apartment and move to higher ground as well. And let's see somebody will pay for the property of what I pay, you know. So when you're thinking about moving for personal reasons and maybe for, climate reasons, will it be a profitable investment? It will be. It will be a profitable investment.

Yes. Yeah. It will be a proper investment. So Victor is very sure that his apartment is going to lose value because of climate change. And so the plan is to sell it before that happens. A lot of people in Brickle are sort of following this model. And what that means is that at some point, a lot of people are going to be left with houses that might be underwater in terms of value,

but will also be literally underwater. I mean, I, when I was coming down here, I read a think tank report that said that by 2050, about $23 billion of real estate in Florida could be underwater. Yeah. So, I mean, how would that compare? to the 2008 housing crisis? It would be devastating. It would be cataclysmic for those homeowners

and for the ripple effect that that would take place. Because if you've got a million dollar property here, think of the property taxes that that throws off to the county government, to the local school district, to the state government. And so if that value destruction hits because of rising seas, it's not just the property owner here at the jade that's going to be impacted by it.

It's the entire South Florida economy, by extension, the Florida economy. And conceivably by extension, the national economy is Florida being the third most populous state. It is a place with great wealth, certainly, and generates a lot of federal tax revenue as it does for the state government. So is it going to take for like a change in thinking here? Is it going to take a signal from, say, the insurance industry to say, we are not writing policies for buildings built two feet above the waterline. I've contended for years that in order for any community, any industry, any neighborhood, any government, frankly, to take the threat of climate change seriously,

it's going to take the financial community to put a price on it. Be that either through more accurately priced flood insurance to hire cost of mortgage, I've heard financial professionals think about creating a kind of home mortgage that works similar to an auto loan. The moment you sign the paper for your car loan and drive that car off the lot, it begins to decrease in value. It's a wasting asset. Do we need to reconceive of our underlying concept of home ownership as an asset that is going to be devalued? over time. For homeowners like Victor

and a lot of developers in South Florida, this model makes perfect sense. It may be a short-term model, but it is a model that works for them. And, you know, you can make a lot of money. I mean, if you time it right, you can make a lot of money.

And they have some incredible plans, build hotels over there. I mean, it's a beautiful place to live, you know? But, like, with the projections of what's expected to happen here. Again, you transfer, your risk. You're building three years, four or five years, and then you're out.

You're trying for your risk. But, I mean, at some point, no, no. It's worthless. No, no, but like, no, I mean, sure, you transfer the risk, but at some point, someone is left holding the bag. Correct. Right? Yeah, it's like a pyramid's king, you know. Who's the last one?

You don't want to be the last one, yes. Stephen Valentino in Florida with Victor Rodan, a risk assessor. And we heard from Tom Hudson who hosts a program called The Sunshine Economy for WLRN in Miami. Today we're looking at the financial crisis of 2008 and how it affected the climate crisis of right now two catastrophes for the price of one. Only on the New Yorker Radio Hour. Stick around. I'm David Remnick. This entire hour, we've been looking back at the financial crisis of 2008, at its consequences in American politics and in the global environment.

and how those two things are related. George Packer is the author of the book The Unwinding. He's thought as deeply about America and why we find ourselves divided so sharply as anyone writing today. So, George, you've spent a lot of time thinking about, reporting on, writing about the 2008-2009 financial crisis.

What is the link between that epical event, the financial crisis, and the Trump presidency? I think it's a fairly, straight line because the financial crisis destroyed large numbers of middle class people's faith in government, in banks, in the housing market, in their retirement funds, in job security, all the things that were like the basis of middle class security were gone almost overnight for a lot of Americans. And it created a sense of what do I have to do to do?

have a good life here. I thought I was doing everything right and it's all been taken away. Who took it away from me? George, one of the things we're looking at is the connections between the financial crisis and climate change. Climate change is one of the irreversible aspects of the Trump presidency. He pulled us out of the Paris Accord. He has infused his party with the disbelief in science and the conclusions of scientists. It's also an issue that Trump uses as a wedge. Why is climate climate change denialism, a winning political issue for the party and for him? I think for two reasons. One, it's a great way to stick it to liberals.

Al Gore was the first major spokesman in politics, sounding the alarm bell. What a great target for a Republican politician. And so it just became, in the tribal political world we live in, another way to bash them. But it also is ideal because climate change is just an entire loser for everybody. It just means you have to give things up. It means you have to change your lifestyle. You can't drive the car you want. You can't use the amount of energy you want.

You have to spend trillions of dollars to ameliorate the situation. Exactly. To build sea walls, et cetera. Wouldn't it be wonderful if you could just convince yourself that it was a hoax? Well, when you were traveling, and it wasn't just in Florida, you were all over the kind of. to report this book, and you've reported from all over the country for the New Yorker for years. How do people talk about climate change that are not in Brooklyn or Francisco, wherever you might be? Well, I'll give you an example.

One of the main characters in The Unwinding is a guy named Dean Price, who's a North Carolina biodiesel entrepreneur who really believed that the depressed rural economy of North Carolina would be brought back by making diesel fuel out of canola. on former tobacco field. So he had an environmental vision. But when I asked him about global warming, he said, you know, maybe you're the one who believes in magic. Because you don't, do you understand the science of it? Have you, are you enough of a scientist?

And I had to admit, no, I'm trusting scientists who do have the credentials. Right. You didn't know how to get to the moon either. Right, right. But I trust them that they know what they're talking about. And he was sort of impeaching me for being credulous about science. And I thought, well, Dean believes in science. Why is he making an exception on this issue?

And... Because it's exceptionally painful and expensive. I think it's just too much for us to take in. And we, you and I don't really take it. I mean, if we lived every day of our lives thinking about this all the time, it would be so paralyzing and we'd be so unable to turn a light switch on that life would be untenable. When you look at the wreckage of 2008, 2009, and you look at our current politics, and then head to what's in store for climate change and nationally and globally, what's to be done in the real world of politics? What's the way out? Is there a way out?

So not long ago I wrote a piece for the magazine about Ryan Costello, who's a Republican from Pennsylvania, retiring from Congress young, who's a conservative about many things. voted for the tax cut, but on global warming, he is quite adamant that we have to, you know, do something about carbon emissions, et cetera. I don't know all of his policy views, but for him, this issue is crucial. And obviously for his constituents in suburban Philadelphia who know about it and who believe in it, Republicans like him need to get some foothold in their own party. We cannot have a single party addressing this issue. It has to be the whole country. And as you're telling me, 30 to 40% of Americans don't believe in manmade climate change. But what I'm also telling you, and it's a horrendous thing to say, is too late.

Too late in certain respects. I mean, it's never too late to ameliorate the situation and to do better than we could. But in many ways, what we could have done 20 years ago is now an opportunity lost. You're right. You're right. So we'll end up doing what moves? communities away from the coast, building sea walls, trying to find, you know, answers to hurricanes.

And facing problems of whether or not this country is still capable of or wants to help the poor in other parts of the world. Which is at this point unthinkable. I mean, we won't. And that's going to get hit the worst. And they will want to come here and to Europe as they do now, but in greater numbers. and our sympathies will be, you know, even more corroded because we'll be struggling with things ourselves

and our politicians will be telling us we can't afford it and we don't want them. And it's a pretty dark picture. George, we've heard conspiracy theories having to do with the financial crisis, its origins and the way we went about trying to fix it. We've heard now conspiracy theories for decades about the truth or falseness of climate change

Does one conspiracy theory feed on itself lead to the next one? Does it erode matters? Yeah, I think once you've assured yourself that the experts don't know what they're talking about because they got the Iraq war wrong and they got the economy wrong and they got all kinds of things wrong, then sure, why not everything, including the hardest thing, which is climate change. Climate change might be the original conspiracy theory of our time. Obviously, there have been legions in the past, but the original one of our time that kind of softened up the ground for all the others. Because it really did begin with the Republican Party under George W. Bush mocking Al Gore and the other ringers of the alarm bell.

So that made it thinkable that everything else that the experts say might be wrong. George Packer, thank you. Thank you, David. Politics, our economy, and our environment, they're all interconnected. And what we're seeing here is that we can't fix any one of these things without tackling all three to some extent. Adam Davidson, our financial reporter is with us. Adam, we have the president that we have, at least for another couple of years. whose attitude toward the financial system,

whose attitude toward climate change is what it is, and it is unlikely to change. It's unlikely to change. What can be done right now, whether it has to do with the financial system, which we've been discussing, or climate change and their interaction that could cause us to be setting a better course,

and certainly without Trump in the picture after two years, what could be done to set a better course? You mentioned, of course, a carbon tax. What else? So, first of all, I think that the American presidency is a uniquely powerful office. And there is no real solution without having an American president who embraces the necessity for that change. There's some opportunities to build coalitions between the U.S. and civil society and Europe and China. And the citizens have to take this on our.

ourselves and not just not just by marching, although marching is not a problem, but by really fleshing out the tangible solutions. We've seen that in other areas. We've seen that in the civil rights struggle. We've seen that in the gay rights struggle. We've seen that in a million areas where frustration, of course, is in the civil rights struggle. You had a president who was susceptible to pressure that the march on Selma happened, the violence

in Selma happened, and it affected Lyndon Johnson. And Lyndon Johnson was able to leverage that in common. Congress. You don't have that political situation now. To me, the fundamental difference between the financial crisis and the environmental crisis comes down to that. With the financial crisis, Henry Paulson had something that we don't have yet with the environmental crisis. He had a day. It was a Thursday morning where he was able to get the leaders of Congress that he was able to get everyone into a room and say, if you do X, Y, and Z, we will save the world. If you don't, the world will end your call. And it was sharp and specific, and the pressure was unimaginable.

The difference is that when we see hurricanes in Florida, when we see the southern tip of Manhattan practically underwater, we can somehow, or if the politicians are like Donald Trump, they can somehow flip it around and say that this has nothing to do with climate change. Yeah, and by then it's too late. I mean, I think a lot of people see the recent, U.N. report. A lot of people see the hurricane season

as we're there now. We are getting the message. It's time. But not enough people are getting that. And it's not going to come down to this decision on this day. And what we seem to know is politicians and lots of people are not good at taking important action about the future

unless there is that kind of signal. Do it today or we all die. Adam Davidson is a staff writer at the New Yorker. We've been looking at the financial crisis of 2008, the ongoing climate crisis, and how those things are somehow connected. Now, to get the long view on this, the really long view, we turn to Jill Lepore. Jill is a staff writer at the magazine and a historian at Harvard University, and she's just written a big, excellent history of the United States, these truths. In Jill's view, this kind of short-term thinking that we've been talking about. about and complaining about is no accident.

It's actually baked into our democracy. The federal constitution is a really only long-term plan. Everything else is running for office. Everything else is election-driven. Everything else has an incredibly short time horizon. When there has been more long-term planning, it's come from people who don't hold elected office. So thinking about maybe Alexander Hamilton's economic planning in the 1790s, which is a

a kind of blueprint for economic development in the new nation that is going to take decades to really see results. Long-term planning comes from other sources. It can come from party strategists. It can come from cabinet members. It can come from social movements. Think about the campaign to end lynching. It takes decades and decades and decades and decades. And it takes change coming from all quarters. It takes muckraking journalism. It takes rallies, it takes marches, it takes legislative act after legislative act. But it also takes a very big public conversation and a reckoning with the costs and a sense of what it does to all of us to live in a world of violence. And that kind of stirring massive political change, the nature

of our public conversation about climate change really hasn't happened yet, but there's no reason it can't happen now. But with climate change, you know, as Adam suggests, If there isn't a single moment, an hour of a particular day on a calendar year, where the disaster is suddenly witnessed and illuminated and the urgency is suddenly manifest, then really I think you're maybe looking to sources of change that are outside of the federal government. I mean, I guess reform within the private sector would be the place where you can most easily imagine long-term people. planning in the national interest that also happens to align with the interests of every corporation making some headway. So a carbon tax is a really important proposal for addressing climate change, a very rational proposal. And you can consider the federal income tax, a graduated federal income tax, was a very rational idea that took decades to earn the support that it needed

to go to Congress and then to go to the states for education required a constitution. Amendment. Carbon tax doesn't require a constitutional amendment. It requires a sense of common purpose, and it requires reaching across different political constituencies so that people can understand our shared, if unequal, burden. Common purpose and shared burden. If we leave you with any takeaways from this program today, let it be those.

Jill Lepore is the author of These Truths, a New History of the United States, and she's a staff writer for the New Yorker. That's our show for today. I'm David Remnick, and I want to thank you for joining me. I hope you'll join us next time. The New Yorker Radio Hour is a co-production of WNYC Studios and The New Yorker. Our theme music was composed and performed by Merrill Garvis of Tune Yards with additional music by Alexis Quadrata. The New Yorker Radio Hour is supported in part by the Cherina Endowment Fund.