I used to write a lot about crypto.1 The reason I liked writing about crypto is that it seemed to be rediscovering all of regular finance from first principles, quickly, in public. It was a fabulous laboratory for understanding financial structures. If you wanted a public demonstration of why, I don’t know, infinitely leveraged shadow banks were bad, you could wait 20 minutes and crypto would give you one. (One reason I write about crypto less now is that this has stopped: When FTX collapsed, a lot of the fun financial experimentation in crypto collapsed with it.)

Climate investing isn’t really like that, but it’s a little like that. Sometimes, reading stories about green-investing stuff, I get the feeling that I am listening to dorm-room conversations about capitalism, people rediscovering finance from first principles. “Trees are good for the climate, what if we paid people not to cut them down?” “Great idea, I wonder if there will be unintended consequences.” And then there are a million amazing stories about how that sort of regime can be gamed — and how it can be made more sophisticated to stop the gaming, and how those more sophisticated regimes can then be gamed, etc. Because green investing regimes really are, sort of, a whole alternative financial system, designed to mobilize money to maximize some function of “returns plus climate” rather than simple returns. And if you are building an alternative financial system from scratch there will be bugs. And meanwhile — just like in crypto — there will be people over in the regular financial system, trained over the years to identify and exploit bugs in financial systems, and they’ll happily hop over to your system to exploit your bugs.

QOSHE - Coal Plants for Green Investors - Matt Levine
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Coal Plants for Green Investors

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04.01.2024

I used to write a lot about crypto.1 The reason I liked writing about crypto is that it seemed to be rediscovering all of regular finance from first principles, quickly, in public. It was a fabulous laboratory for understanding financial structures. If you wanted a public demonstration of why, I don’t know, infinitely leveraged shadow banks were bad, you could wait 20 minutes and crypto would give you one. (One reason I write........

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