Participants at the Paris Climate Conference COP21 agreed that global warming should be limited to 2°C. This would be the case if carbon concentrations could be stabilised at below 450 parts per million (ppm). However, simulations with climate models show that even at this level the risk of overshooting the 2°C limit is not negligible. From an economic point of view, it would be optimal to take early measures to reduce tail risks. To overcome public reluctance to make small sacrifices now to avoid substantial future damages, climate policies should be appropriately framed.
None of the legislative proposals to reform the US mortgage market has yet come into force. Most of them start from the same position: although government guarantees are essential in ensuring a liquid and stable mortgage market, the Federal government should not be the sole party exposed to payment default risk, especially as this is transmitted through two agencies, Fannie Mae and Freddie Mac, that are in financial difficulties. In the absence of legislation, the regulator of the two agencies has sketched out the foundations of a reform, by developing a program to transfer “non-extreme” credit risk to the market.
