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Your (good) proposal is in fact formal G20 policy to meet the Sustainable Development Goals via the Hamburg Declaration. It is seen to have two problems: firstl

Your (good) proposal is in fact formal G20 policy to meet the Sustainable Development Goals via the Hamburg Declaration. It is seen to have two problems: firstly, it is not politically viable to do it at scale as democratic countries won’t accept an arrangement where private profit is derisked with public money. Rightly or wrongly. Secondly, it solves the problem of creating an incentive for public goods. That’s great, but does not disincentivize public bads which I mentioned above.

credit_guy 3y ago
> Rightly or wrongly. No comment. > That’s great, but does not disincentivize public bads which I mentioned above. It’s simple. Tax the externality. In this case institute a carbon tax. It appears to me you are saying we can’t figure out how to be a functional democracy. That’s a shame. One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other.
- Biologist123 3y ago
  > It’s simple. Tax the externality. In this case institute a carbon tax. A currently popular idea is “a revenue neutral carbon tax” in which funds raised are paid back out to low emitters. Maybe the progress of this idea will be a good benchmark for whether we’re a well functioning democracy. I appreciate this sounds cynical, but I mean it sincerely. > One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other. You’re layering in a value judgement here about the civic virtue of banks into a problem statement which I hope can be evaluated on factual accuracy rather than values. If the problem statement holds, the solutions can then be debated and the toolkit of solutions evaluated for the job. 1. Banks have a powerful ability to determine which projects happen and which don’t through the credit mechanism. Because often times no credit = no project. 2. When projects are evaluated on narrow financial criteria, wealth can be destroyed rather than made. The project will create free cashflow and the loan will be repaid, but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath. 3. Banks lobby to prevent the credit issuance mechanism being broadened to exclude projects which move costs onto third party balance sheets. You’ve pointed out a possible problem with the democratic process, so maybe the above is really a symptom and not a true root cause, which in fact would be something along the lines of: Powerful economic actors stymy reform of the economic system to favour financial profit at the expense of sustainability. [Edit: for inclusion of final two paras]
  - credit_guy 3y ago
    The 3rd bullet point is conspiracy theory. Also, difficult to parse. I'll give it a try: banks are lobbying to prevent something. That something is the broadening of the credit issuance mechanism. The way the broadening is supposed to work is by excluding projects that move costs onto third party balance sheets. How can you broaden something by excluding a category of projects? That's quite a headscratcher. I think I see another way to parse your statement. Banks lobby to prevent X in order to exclude Y. Where X is the broadening and Y is some projects. But I don't understand your point. If the bank lobbying on this matter is bad, it follows that you are in favor of including Y, vs excluding Y. So you want to include projects that move costs onto third party balance sheets? What does that even mean? What projects do you have in mind, and how would these projects help with climate change? Anyway, back to your central point, which I believe is this: > no credit = no project And this: > projects are evaluated on narrow financial criteria You would like banks to evaluate ESG loans in such a way as to account for the net benefit to society. That sounds like a sensible idea. It results in yes credit = yes project. The problem is that the loan continues to exist after its origination too. And at that point the financial criteria revert to being narrow. Let's say JP Morgan announces during the quarterly earnings call that they increased the loan loss reserve by $20 billion because of non-performing ESG loans. And Jamie Dimon hops on the call and explains to the analysts that those loans were made with the full consideration of the societal benefit they entail. Do you think people will say, "Ah, ok, then we're all set. Good job Jamie, keep it up". Well, there's actually quite a good chance that this is exactly what they'll say, but millions people will vote with their wallet, and the share price of JPM will tank. I see how you can perceive this as being short-sighted, or unfair, or [insert some bad sentiment]. But this is how the world works. And guess what. At least the US Government is aware of how the world works, and the Inflation Reduction Act decided to work within the system rather than fight it. So banks are very happy to extend credit, and green projects are booming. See for example [1]. All in all, a lot of people see the glass half full. [1] https://www.gsam.com/content/gsam/uk/en/institutions/market-insights/gsam-insights/perspectives/2023/us-inflation-reduction-act-is-driving-clean-energy-investment-one-year-in.html https://www.gsam.com/content/gsam/uk/en/institutions/market-...
    - Biologist123 3y ago

credit_guy 3y ago

> Rightly or wrongly. No comment. > That’s great, but does not disincentivize public bads which I mentioned above. It’s simple. Tax the externality. In this case institute a carbon tax. It appears to me you are saying we can’t figure out how to be a functional democracy. That’s a shame. One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other.

Biologist123 3y ago
> It’s simple. Tax the externality. In this case institute a carbon tax. A currently popular idea is “a revenue neutral carbon tax” in which funds raised are paid back out to low emitters. Maybe the progress of this idea will be a good benchmark for whether we’re a well functioning democracy. I appreciate this sounds cynical, but I mean it sincerely. > One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other. You’re layering in a value judgement here about the civic virtue of banks into a problem statement which I hope can be evaluated on factual accuracy rather than values. If the problem statement holds, the solutions can then be debated and the toolkit of solutions evaluated for the job. 1. Banks have a powerful ability to determine which projects happen and which don’t through the credit mechanism. Because often times no credit = no project. 2. When projects are evaluated on narrow financial criteria, wealth can be destroyed rather than made. The project will create free cashflow and the loan will be repaid, but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath. 3. Banks lobby to prevent the credit issuance mechanism being broadened to exclude projects which move costs onto third party balance sheets. You’ve pointed out a possible problem with the democratic process, so maybe the above is really a symptom and not a true root cause, which in fact would be something along the lines of: Powerful economic actors stymy reform of the economic system to favour financial profit at the expense of sustainability. [Edit: for inclusion of final two paras]
- credit_guy 3y ago
  The 3rd bullet point is conspiracy theory. Also, difficult to parse. I'll give it a try: banks are lobbying to prevent something. That something is the broadening of the credit issuance mechanism. The way the broadening is supposed to work is by excluding projects that move costs onto third party balance sheets. How can you broaden something by excluding a category of projects? That's quite a headscratcher. I think I see another way to parse your statement. Banks lobby to prevent X in order to exclude Y. Where X is the broadening and Y is some projects. But I don't understand your point. If the bank lobbying on this matter is bad, it follows that you are in favor of including Y, vs excluding Y. So you want to include projects that move costs onto third party balance sheets? What does that even mean? What projects do you have in mind, and how would these projects help with climate change? Anyway, back to your central point, which I believe is this: > no credit = no project And this: > projects are evaluated on narrow financial criteria You would like banks to evaluate ESG loans in such a way as to account for the net benefit to society. That sounds like a sensible idea. It results in yes credit = yes project. The problem is that the loan continues to exist after its origination too. And at that point the financial criteria revert to being narrow. Let's say JP Morgan announces during the quarterly earnings call that they increased the loan loss reserve by $20 billion because of non-performing ESG loans. And Jamie Dimon hops on the call and explains to the analysts that those loans were made with the full consideration of the societal benefit they entail. Do you think people will say, "Ah, ok, then we're all set. Good job Jamie, keep it up". Well, there's actually quite a good chance that this is exactly what they'll say, but millions people will vote with their wallet, and the share price of JPM will tank. I see how you can perceive this as being short-sighted, or unfair, or [insert some bad sentiment]. But this is how the world works. And guess what. At least the US Government is aware of how the world works, and the Inflation Reduction Act decided to work within the system rather than fight it. So banks are very happy to extend credit, and green projects are booming. See for example [1]. All in all, a lot of people see the glass half full. [1] https://www.gsam.com/content/gsam/uk/en/institutions/market-insights/gsam-insights/perspectives/2023/us-inflation-reduction-act-is-driving-clean-energy-investment-one-year-in.html https://www.gsam.com/content/gsam/uk/en/institutions/market-...
  - Biologist123 3y ago