It has been a difficult few days in New York as the air quality has been the worst in the world for most of the last 48 hours due to the wildfires in Quebec.

The City of course has seen tougher days, much tougher. It has also experienced climate-induced disasters before, including Superstorm Sandy in 2012 and catastrophic flooding that killed 14 across the City and left much of Central Park underwater less than 2 years ago.

Unfortunately, this event, like the last two, is not likely be the wake up call that will drive the world’s financial capital to close down its investments in fossil fuels and commit to a transition to wind and solar.

We want to believe that action will be taken in NY and DC to make the necessary investments in wind and solar so that mankind will finally act (already very late), but this is unlikely to do it. I find myself asking whether anything will change until it hits the pocketbooks of the wealthiest banking leaders. A flooding even on Dune Road in the Hamptons is more likely to result in action than a couple days of bad air quality.

I have said before that the four largest US banks – Chase, Citibank, Wells Fargo and Bank of America – need to perform stress tests in which they mark to zero the values of their fossil investments. The results of those test need to be balanced against real tests showing whether they – and the economy, writ large - can survive a massive disruptions to the functioning ecosystem. (https://www.bestcashcow.com/could-the-climate-crisis-lead-to-a-banking-crisis.html).

After accounting for the dramatic decline in the costs of wind (offshore wind and onshore wind), of photovoltaic cells and of lithium production – much of which we have seen in just the last year – it is clearer now that the transition is not just necessary, but cost-effective for those willing to fund it. A 2022 Stanford University study outlines the reality that a transition to wind, water and solar will cost $62 trillion globally, but will have a payback period of 6 years with $11 trillion in direct and indirect benefits annually. If not the current roster of major banks, then some other institutions needs to form or be former to make this investment and reap this reward.

Meanwhile, New Yorkers continue to suffer through lightheadedness from the smell of burning maple and just hope for an end to this.

I don’t agree with Senator Kennedy much. Almost everything that he has said publicly since Trump emerged has been absurdly and blindly naive. His positions on the major social issues of our time indicate he wants to wage war on the young and on women. And, he seems to get his jollies by trying to stump Biden’s judicial nominees with simple first-year law school civil procedure questions about federal diversity jurisdiction.

While mostly bluster, he did show some signs of being a real Senator yesterday. He first interrogated Greg Becker, the Silicon Valley Bank CEO, appearing to know more about his bank’s exposures than he had himself, before telling him: "Mr. Becker, you made a really stupid bet that went bad."

After Becker claimed that SVB’s demise was wholly the result of an “unprecedented” bank run driven by social media (something I suggested wasn’t the case here), Kennedy replied: "This wasn't unprecedented. …. You put all of your eggs in one basket. Unless you were living on the International Space Station, you could see interest rates were rising and you weren't hedged."

Kennedy also suggested that Becker failed to make any effort to save the bank because he had already cashed out and would have had very little himself to financial gain through a financial transaction or acquisition.

>

Quite extraordinarily, Becker didn’t apologize to other banks or the government during the course of the Senate hearing. Instead, he apologized to his customers who were wholly indemnified to the detriment of the other banks and the government.

I also do not agree with Massachusetts Senator Elizabeth Warren about everything. However, I agree with her position that Becker needs to be investigated and that the government should enact laws providing for the claw back of executive compensation where there is a bank failure.

Jamie Dimon, JP Morgan Chase’s CEO and Tufts alumnus, appearing this morning on Bloomberg from Paris said that the largest regional banks with which he speaks are all in good financial shape. They, however, are exposed to the sudden and instant messaging through Twitter or other forums from hedge fund gurus who - by casting aspersions and having front run a large short position - can easily create a bank run and put them out of business. In order to prevent this, Dimon said that the US government and SEC need to act immediately to ban short-selling of banks and to impose strict penalties for violations.

The Bloomberg interview, which is quite good, is here.

While I am ordinarily not a fan of interfering with the free market and limiting short selling, temporary impositions on short-selling have been used around the world at times of extreme volatility to calm the markets.

It is also clear that short-sellers played a significant role – with some benefitting tremendously and the government’s (taxpayer’s) expense – in the quick demise of Silicon Valley Bank.

Against the backdrop of the debt ceiling, banks are still considered at risk due to their interest rate exposure, even after the US Treasury and Janet Yellen have created extraordinary backstop measures. Hedge funds, in many cases, are now so large and powerful and could continue to use social media to instantly take down midsize and large banks. Extaordinary times call for extraordinary measures. Dimon therefore is correct that – albeit an extreme measure – banning short selling of banks has become a proper way to protect banks.

Additionally, I want to address some of the theories being circulated on social media that the US banking system can do fine with far fewer banks and credit unions than it has. Europe and Japan with far fewer banks are often cited as examples here.

The reality is that the US financial system is far more vigorous and robust than any other due to its many different players each vying to fill a niche is certain markets. Especially now, small and medium sized banks are necessary to fill the void that has caused the US to fall behind much of Europe in solar and wind energy. Chase, Citibank, Wells Fargo and others all have extraordinary exposure to the carbon industry and cannot reasonably be expected to lead the necessary (and now cost-effective) transformation of our economy to a carbon-free one.