NEW YORK: David Burt helped two of the protagonists of Michael Lewis' book The Big Short bet against the US mortgage market in the run-up to the 2008 financial crisis.
"The market's failure to integrate climate science with investment analysis has created a mispricing phenomenon that is possibly larger than the mortgage credit bubble of the mid-2000s," Burt wrote in a presentation to prospective clients.Most mainstream investors remain skeptical of the impact of climate change on their portfolios or argue that they are diversified enough not to have to worry about the risks.
Outdated maps mean far fewer people are required to have flood insurance than are at risk, the investors and researchers say. A University of Bristol estimate put the actual figure at around three times the 13 million Americans currently living in designated flood zones. Burt’s bet is that the move will result in significant cost increases. That in turn will lead to home price declines and mortgage losses, which would increase volatility in RMBS prices."The bet I'm making is that many regional markets will experience large price declines in response to increasing costs related to the geography-specific risks," Burt said.There are many risks to Burt’s thesis. In the past few years, RMBS prices have recovered after disasters such as Harvey.